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How to Handle Cash Flow Problems in Your SMB

If you are a small or medium-sized business owner, you’ve likely worried about cash flow at some point throughout the life of your business. Whether you run a brick-and-mortar clothing shop or you sell world-class software online, cash flow is a problem that plagues all businesses at some point or another. And there’s no shame in reaching out for help when you need it.

Running your business is important and ensuring that you have the runway to continue to operate at full capacity means that you can continue to service clients, create new opportunities for revenue, and maintain trust with your existing clients. Here is how you can handle cash flow problems in your SMB without skipping a beat.

Plan for it.

If you run a business these days, there’s really no excuse for not having a rainy-day fund. Everyone knows that the economy is unstable, albeit in steady recovery. Everyone knows that businesses have dry seasons and spells of unexpected delays in payments. And everyone knows that at any time, your customers could just up and walk away. So if we all know this, then why do we not plan for it.

A good rule of thumb is to take a small percentage of your revenue and tuck it away. This rainy-day fund is not just something your mother used to talk to you about for everyday life, but it’s also applicable in business. Having just a few thousand dollars can mean the difference between making payroll for your employees and not making payroll. It can mean being able to pay suppliers and being charged fines for late payments.

So, skim some money off your revenue starting now and put it away for when times are tough. Because times get tough when you run a business.

Have a backup plan.

Even a rainy-day fund might not be what you need if you run into some cash flow problems that last a long time. If you run a seasonal business that isn’t producing like previous years, you might find yourself trying to come up with cash quickly in order to carry on. You might do some research ahead of time so that you have some ready-made options available to you if you encounter a longer-than-expected drought of funds.

A merchant cash advance is a great option for small and medium-sized businesses looking for cash to hold you over until revenue starts to roll in again. What is a MCA you might ask? It’s money that can be made available to you through your digital merchant account provider in the event of a cash flow problem.

Unlike a loan, you don’t have to go through a lengthy application process, and besides a nominal fee, it’s cheaper than a high-interest bank loan as well. The money is directly deposited into your bank account when it is approved, and the merchant provider simply takes a percentage off every credit or debit card transaction until the advance is paid back. It’s a stress-free way for business owners to keep operating without having to go to the bank to take out a hefty loan.

Collect Receivables

Nearly every business does some work on credit, which means that you might be waiting for payments from some of your clients or customers. Depending on the industry you work in and how you invoice sales, you might be waiting months for some of your payments.

If clients owe you money and you are starting to feel the purse strings tighten, get on the phone and start looking for that money. It’s not the most graceful way to fix your cash flow problem, but it’s perfectly acceptable to ask for money that is owed to you and your company.

This is often a problem for consultants and freelancers who don’t have the stability of a big company behind them to collect accounts receivables. But if another company or client owes you money, it’s fine to collect. It’s also a good lesson in how you run your business.

There’s no need to allow someone 30 days to pay a bill when they can pay it in 7. Ask for prompt payments, schedule the way you collect money and deposit it, and stick to it. Small changes to how you send invoices, process payments, and collect funds that are owed can make a big difference to your cash flow problems. Don’t allow it to continue. For the most part, you can judge with pretty good accuracy when the slow times will come, and how much you might need to carry on in the event of a cash flow problem.

Be prepared and you won’t be left having to call friends and family to ask for money. For most small and medium-sized business owners, having to let others know that they are coming up short is worse than having to shut down entirely. It’s hard for people to talk about money, but if you believe in what you are doing and you have exhausted all of your other options, do what you have to do.