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9 Ways To Cope up With Small Businesses’ Financial Struggles

9 Ways To Cope up With Small Businesses’ Financial Struggles

Tuesday April 21, 2020,

7 min Read

Every business believes ‘Cash is the King’. And why not? From buying the tiniest product to selling one for hundreds of dollars, it all requires cash. Either you have a small business or you are the boss of a huge enterprise, it is important to have a regular cash flow in the business. But it is an utter mistake to run out of cash, therefore a proper financial balance should be the prior necessity.

Small business and money struggle complement each other. While there are many other queries like management and improper implementations, the major problem is the lack of cash. QuickBooks State of Cash Flow Report verbalizes six in every ten small businesses that struggle with cash flow.  

According to Forbes, 66% of the small businesses in the United States imply a delay in payment processing to be one of the biggest problems for their reduced cash flow. Whatever the reason is, it is not acceptable to lose a huge sum when you can have measures to stop it. 

Here are the common yet topmost 9 financial struggles that small businesses face.

1 Miscalculating Startup Costs

Most of the startups and small businesses underestimate the startup costs. They assume that the initial steps can cost millions when starting a business. During the initial years. Nearly 29% of startups succumb due to a lack of cost vision. The fear revolves around the thought that they won’t be able to manage the humongous amount.

They are scared of the huge amounts (often taken from Loan Sharks) they require to pay. Such concerns haze their vision and doings, making them underestimate their potential and cutting short their needs.

Another factor that always remains a matter of concern for small businesses is the active participation of investors. Truth be spoken, their concerns may not be imprecise on the untold bet on investors financing their startups.

In most cases, it is seen that the businesses are scared to ask for loans from the banks. But here is a reality check - banks always look for real investment opportunities. If the startups fail to borrow money that is lesser than their requirement, they may run out of cash and it can be a huge failure for their business. Here is a method to neutralize the ill effects.

2 Unlimited Sales Promotion

It is indeed a good option to boost your sales and promote your product in order to uplift your business. But doing it might often reduce your profit margin. So, going for short term sales promotion with longer profits is an actual benefit. 

3 Mispricing

It is another issue that most of the startups and small businesses face. They might find themselves in a situation where their products and services are mispriced. When they calculate the sum, they find that the price of the product is completely different from the market value. This reduces their market value and it may lead to loss of potential customers. 

4 Delayed Client Payments

Many times a large number of small businesses and startups face delayed client payments. If you bear the same issue, it may create a void in your business. This can lead to an awful outcome of complete downfall. 

The businesses must have policies and strategies to avoid delays in payments. It is better to take the help of law and sign on a pre-planned and dated agreement. After all, money on time makes companies work with a flow and serve customers better, and happy clients can definitely lead to happy business.  

5 Low Profit 

There are times when businesses have more sales and less profit. The reason may be excessive expenditure on sales or falling for services with some hidden costs. The businesses should analyze and manage their funds beforehand.   It is imperative that they keep a keen and constant eye on the fundings and where they are spent. Moreover, they should maintain a habit of calculating their regular profits after each transaction.

6 Disrupted Cash Flow Management

One of the major hindrances to a successful business is the poor management of cash flow. Most of the businesses fail to update their finance books and irregular bookkeeping habits never profit businesses. Monitoring cash flow on a regular basis should be a prior task for every business as no task is possible without cash abundance.  

7 Irregular Payment Of Bills

Bills are an essential part of every business, be it related to one department or multiple. Late payment of bills is a sign of mismanaged cash flow. Just like it is mandatory to receive regular payments, it is also important to clear bills within time. 

8 Lack Of Working Capital

Working capital is the backbone of any business. Without sufficient capital, it will be difficult to process, invite new customers and have multiple clients. A business should have enough capital to manage the six months of expenses and there is enough space to peacefully run the business. 

9 Monthly Expenses

When you own a business, you need to care for all the monthly expenses as they are a part of your business. Some of the expenses that should be handled effortlessly to keep your business fruitful includes:

  • Licenses
  • Insurance
  • Equipment purchase
  • Maintenance of products
  • Employee bonus or incentive

Effective Solution

While small businesses face financial challenges, there are solutions to cash flow problems:

1 Short Term Financing

Short term financing can be an ideal solution to the cash flow struggles. The businesses can use the line of credit to pay in case of emergencies or unplanned cash shortages. This can reduce the gap between payables and receivables, thereby promising to be a beneficial aspect to the businesses. 

2 Speed Up Recovery Of Payables

It is easy to track the receivables as soon as the products are delivered. So, to guarantee fewer losses while collecting bills, make sure to send the bill early and collect the reports quickly. Make clear invoices and collect bills as early as possible. 

If you are handling big orders, you can adjust with payments after the delivery of all the goods and services. Ask your customers to pay in installments or ask for a percentage of payment as an advance before commencing any delivery. 

3 Long Term Financing

Long term financing is another way to minimize the financial struggle as you have a proper plan for the future of the business. For buying huge equipment as well as real estate, the businesses can take long term loans rather than spending their working capital. This way, they can divide the asset for a period and save for their current needs. 

4 Know When To Delay Payables 

Most businesses fall into this trap. Most of the startup owners think of paying off their loans instantly to be a better business idea. This, how so ever is untrue. Unless you don’t have enough money in your account, you must figure out an appropriate time to delay the payables.

However, this should not create any adverse effect on the receiver. Inform them beforehand about the reason for the delay and give them an approximate time to return the money. This acts as a trust earning factor and saves money for better investments. 


5 Learn To Liquidate Cash

If you have an equipment or an inventory that is out of date, sell it for getting an apt cash amount. The equipment that is obsolete and unused, fills up space and money that can be used for more productive tasks. And if the equipment still holds a fine amount in the market, it is wise to sell it for the cash. Mark the item in your accounts books and you could use that money for other business purposes. 

Building a strong bridge between payments, receivables and total cash amount is the trick to build a successful business. One needs to remember that an adequate amount of available cash offers better productivity and provides more space for profits.