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How Small Businesses Owners Can Avoid (or Overcome) Cash Flow Problems

By August 5, 2019September 10th, 2019Blog

Cash crunch.

If you are a business owner, these two seemingly simple words must have made you flinch. And if you are considering your own startup, it’s my fair guess that you must have heard your fair share of stories on why cash flow problems are a nightmare for every entrepreneur who’s just entered the field.

Cash crunch remains the biggest problem that kills small-scale businesses that might have survived otherwise. It is the sole factor that forces 20% of all newly founded businesses to leave the industry within the first year and drives out around 70% of the remaining enterprises before they can complete a decade since their establishment.

So, if you are in for the long run and want your business to survive and prosper, it’s essential to know how to overcome cash flow problems or better yet, avoid them from occurring altogether.

Here are the top tips on how you can prevent a shortage of cash from disrupting your business operations or quickly pull out of the same if a cash crunch does occur.

Do SWOT Analysis on a Regular Basis

You must have done a careful analysis of the strengths, weaknesses, opportunities, and threats (SWOT) related to your business before starting out on the venture but that’s not enough. SWOT Analysis needs to be done on a regular basis as it keeps you well aware of the progress of your enterprise.

Monitoring the progress closely enables you to predict the ups and downs on your path easily and accurately. These predictions will help you decide if you might face a cash crunch anytime soon so you can prepare for it accordingly.

Focus on Your Main Customers

According to research, most of the small businesses earn 80% of the total revenue from approximately 20% of their customers. These are the customers who have become loyal to your brand and purchase your goods and services regularly.

Since they contribute the most to your sales, it goes without saying that they can be the saviour for your business during tough times. Know who these customers are and work on strengthening the ties with them even further. Not only can they pull you out of cash crunch but their buying habits can also help prevent such a problem from arising in the first place.

Consult an Advisor or a Mentor

Experience is the best teacher. You can always learn something new from senior businessmen and other personnel in your industry who have been down this lane. They are important for your small business because they too have probably faced such problems at some point or another and know for sure what tricks and tactics can help you overcome a shortage of cash. Whether you network with senior professionals or hire a business advisor, mentor or consultant, learn from their past experiences. Their valuable insight will prove beneficial for your business not only in times of loss but also in times of profits.

Consolidate Your Debt

Debt often equals the death of small businesses. This is especially true for owners who find themselves under a huge debt burden because they borrowed a much larger sum of money than what they could return in the given time period.

As a result, they have no other option but to sell valuable assets or the company itself. To prevent such circumstances, try to find the best deals when you refinance your current debt arrangements. See if you can combine the debts in order to achieve lower interest rates because multiple debts with different interest rates normally cost more than a consolidated debt.

Try to Get Government Grants

You must apply for financial aid before starting a business. Even if you don’t feel the need or have already started your business, consider applying now as it’s never too late to get some additional help. Governments grants, insurance policies or any other schemes meant to assist small-scale businesses can serve as the backup for cash reserves when your business experiences a shortage of money.

Sell Extra Assets

If you are critically low on cash reserves, you may consider selling some assets to overcome cash flow problems. However, don’t just focus on the value of an asset and sell it out in an attempt to get the most money. You should rather focus on its use and the value it holds for your business.

There might be some extra or unwanted items that your business can do without. Since they must be incurring additional expenditure in terms of storage and maintenance costs, it’s best that you sell out these assets. You can even lease them for a certain time period until your business recovers from the cash shortage.

Push Back Payments

This is the first step you should take in case you find yourself in a cash crunch. If you can, delay some of the payments to suppliers, vendors and the likes. Talk to the relevant authorities/ personnel and request them for an extension on the due date of your utility bills, rent payments and so on.

Diversify Your List of Suppliers

If your business sources the raw materials and other necessary supplies from only one vendor, you are at a high risk of running into cash flow problems if they don’t make the payment on time or something else goes wrong in the payment process.

This doesn’t mean that you should spread yourself too thin, but add just a couple of more vendors and draft specific terms of agreement that ensure such a problem does not arise.

Look for Small Business Financing Options

When a dry spell hits and you require working capital for day-to-day business operations, it might be better to look for financing options for your business. You can apply for a business credit card or a small loan.

However, borrowing may or may not be right for you. Search all your options and compare the interest rates and other crucial factors before committing to any particular financial scheme. You must also take into the account the effect it will have on your cash reserves in the future.


Keep these tips in mind and you can easily overcome cash flow problems as well as ensure smooth business operations.