For small business owners, cash flow problems are a common and dangerous threat to the survival of their companies. In fact, a study by U.S. Bank reveals that small businesses and startups fail 82% of the time due to a low cash flow.
A business is considered to have cash flow problems if they are spending more money than they are making in a given period of time. Obviously, no entrepreneur wants to lose money like that. So what are the biggest reasons that small businesses and startups run into cash flow problems?
Top Reasons Small Businesses and Start-ups Run into Money Problems
1. Too much startup spending
You are no doubt familiar with the old adage “you have to spend money to make money.” While that is true, to an extent, it is also very easy to go overboard with self-investment when you are creating your company. Many times, money is wasted by startup companies because they are not attentive to the cost of the expenses relative to the pricing of their products. Do the math and make sure that your spending is backed by your earnings.
2. No cash flow budget
Monitor your cash flow. Whether daily or weekly, it is so important for business owners to keep track of their earnings compared to their expenditures. If you keep records, you can never be surprised by a sudden lack of funds, and you will also be able to understand which strategies work the best for your company.
3. Overestimating future growth
Never count on your company to suddenly hit a boom in business. Consult your records, analyze the data, and stay loyal to your calculations regarding growth. If you can’t find statistics to support your hunch that your business is about to grow, then it is not safe to assume that it will.
4. Slow collection of accounts receivables
There is potentially nothing that is as frustrating as waiting for your debtors to pay off outstanding invoices. Your clients and customers can be unreliable, late in payment, and ultimately, a huge obstacle to turning a significant profit. When you make a sale, you need to be able to count on getting your cash in return so that you can invest it into future business endeavors.
There are so many different reasons that your small business or your startup can run into cash flow problems. Luckily, for all of those problems, there is one solution—invoice factoring. Invoice factoring is the best source of alternative financing available to small business owners and startups, and its specialty is increasing cash flow and preventing the aforementioned problems.
When you work with Factor Finders, the wait to collect dues from your outstanding accounts receivables becomes a thing of the past. Instead, you are given debt-free working capital that will increase your cash flow and help your business thrive.