When at the outset of your business journey and your company is small, slowly garnering profitability and making it through all the obstacles that lie in the way is difficult. One of these issues is poor cash flow, and it can occur even when overall profits seem to meet expenses.
If we are to discuss common problems that small businesses face, this is certainly one of the major ones. There are plenty more, too. However, very often, all these additional problems are closely related to cash flow problems.
Cash flow is defined as the availability of revenue to meet expenses as and when those expenses are due. If you need to wait weeks before you can pay a bill because an invoice to a client of yours will not be paid until that time, you have a cash flow issue, even if your overall profits do, in total, cover expenses.
Nevertheless, while cash flow is perhaps the number one problem small businesses face, there are many more potential causes of it. Plenty of the problems small businesses face will result in cash flow issues.
Before getting on to the top problems faced by small business (cash flow related or not) it is worth pointing out that there is one quite common solution for this problem. This is invoice factoring. When factoring invoices, the factoring service will pay you the value of them. Then, when the client finally pays, the money is paid back to the factoring service.
If you find yourself suffering any of the problems set out below, then factoring could be the answer. However, factoring service Thales Financial say that there are two reasons why you shouldn’t do it.
The first is if it is likely that the invoice will not be paid by your client, in which case you’ll struggle to pay back the factoring service. The other is if the service is only going to keep you afloat indefinitely, rather than free up the funds you need to make the investments that are necessary.
Common Problems for Small Businesses
The thing to keep in mind here is that all small businesses should be orientated towards growth. Stagnation is almost always the kiss of death for small business. With clear growth – and clear indication to everybody else that your company is growing – invoice factoring can turn into a vicious circle and is, in the long run, unsustainable.
Here are some common problems faced by small businesses that could lead to a poor cash flow or other trouble:
Sudden Failure of Payment
When a client fails to pay an invoice and the money involved is significant, this can become a very serious issue for small businesses, especially if they have no reserve funds to pick up the slack. Even with invoice factoring, it’s of course a problem when the money simply doesn’t come in at all.
Lack of Time
Small businesses generally have a small management team, and many might be run by only one person. Given the work involved in achieving growth, this is a pretty common issue.
Ineffective Web Presence
One of the ways to sort a cash flow or profitability issue is simply to redirect funds from elsewhere and go without in that area. The only problem, however, is that so many of these are necessary for growth. A strong web presence for example is pretty much essential if you’re going to see any new customers at all.
Small businesses face many challenges – nobody said it was easy – and factoring is surely a help with some. Nevertheless, it is always best to get to the very root of the problem.
Another problem small businesses face is using outdated technology to save money in the short-term. Please see the resource below to learn more on how costly the use of outdated technology is for your business.
Provided by CIO Solutions – expert it services Fresno