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5 Common Cash Flow Problems Facing Small Businesses (And How to Solve Them)



Did you know that 70% of small businesses fail before their tenth-year mark?

As wonderful as entrepreneurship sounds, it isn’t all roses. Businesses run into cash flow problems, which, if left unsolved, lead to closure.

But, entrepreneurship isn’t all gloomy. If you play your cards right, you can be part of the 30% that survive.

We’ll help improve your chances by looking at common cash flow challenges and solutions. But first, let’s look at what cash flow is and why it’s essential for your business.

What Is Cash Flow?

Cash flow is the amount of money flowing into and out of your business. It’s constantly changing because it’s influenced by changing market conditions.

Cash flow is essential because it allows you to meet your current financial obligations. And it helps you plan for future goals like expansion.

Common Cash Flow Problems

Understanding cash flow challenges is crucial to long-term business success. Here are the problems you may run into and their solutions:

1. Insufficient Cash Reserves

You may run out of cash reserves soon after starting your business or making a large purchase or investment.

The best way to deal with shortages is to monitor your cash flow regularly. You can visit sites like for help with this. You can also set part of your profits aside to deal with future unexpected expenses.

2. Overspending

Sure, as a small business owner, you have to spend money to make money. However, some business owners go overboard and let their expenses outweigh their revenue. This is problematic because it is impossible to operate with huge costs.

It’d be best to assess your cash flow to determine your most significant expenses. Once you do, eliminate them or look for cheaper alternatives. You can reduce costs by automating repetitive tasks instead of keeping an employee.

3. Slow Payment Processing

There’s a difference between customers paying and accessing the money. Electronic payment processing causes delays between payments and actual receipts. So, it’d help if you had a game plan for operating even with these delays.

Manage cash flow by factoring the delays into your budgeting. This ensures you have money for day-to-day operations. You can also encourage customers to pay with cash by offering cash payment discounts.

4. Growing Too Fast

Contrary to popular belief, not all growth is good for business. Expanding your operations too fast forces you to incur unplanned overhead expenses.

You may need to hire more employees, get new equipment, or increase your inventory. When unplanned, these expenses can kill your business.

So, it’d be best to take things slow and only expand when you’re ready. Plan for all the expected overhead cost increases, so you’re not blindsided.

5. Small Profit Margins

Businesses experience small profit margins because of poor pricing and high vendor prices. So, you need to create an optimal pricing strategy and review it every few months. Also, negotiate for discounts with your vendors, or change suppliers altogether.

Avoid These Cash Flow Problems to Grow Your Enterprise

These cash flow problems can cripple your business if you’re not careful. Looking out for them could be the difference between thriving and failing. Luckily, you now know how to solve them.

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