Running low on money is a common problem for many small businesses and startups. In fact, it’s one of the worst things that can happen to a business owner. Lack of cash means that you’re inhibited from paying any bills, salaries, or vendors. The longer you ignore this problem, the more likely you will go out of business.
One of the largest misconceptions about cash flow is that these issues only occur to businesses who are doing poorly. This in fact, is false. Cash flow issues can occur to businesses who are doing well—in fact, it could happen because they are doing too well.
Of course, many cash flow issues are solvable if you identify them early on—otherwise they can snowball quickly and eventually become irreversible.
Here are 3 strategies for small business owners who found themselves running low on money:
Strategy #1: Build a Cash Reserve (If You Can)
One simple way to avoid cash flow problems is to build a cash reserve. As simple as this advice is, it is extremely effective. Why? An available cash reserve provides breathing room and time to solve any unpredictable or unplanned issues as they arise.
The best way to handle a cash flow problem is to avoid it in the first place. Preparing a cash flow reserve is similar to creating contingency or “buffers” for your company’s growth.
Similar to having a personal emergency fund (which everyone should have), the reality of building a cash reserve may slow down growth; however, the reserve also acts as a safety net that your business can turn to when encountering problems.
Strategy #2: Look Out For a Small Government Loan (They Exist!)
If you’re a Canadian small business operating in Canada with gross annual revenues of $10 million or less, you can consider a loan from the Canada Small Business Financing Program, which finances up to a maximum of $1,000,000. A full list of loans available to small businesses who are just getting started is available here.
Strategy #3: Slow Paying Clients? Focus on Type of Clients & Software
A CB Insights study showed that 30% of small businesses failed because they ran out of cash. Unfortunately, not accurately managing cash flow is the result of this. That’s why it’s so important to acquire good clients and to consider accounting software for your bookkeeping.
Good Clients vs. Bad Ones
For small businesses, working with a bad client versus working with a good one can bring transformative business advantages, including cash flow benefits.
Conduct research to find your ideal client, reflect on the qualities that attract you to that client, and then focus your time and energy on building relationships with clients with those same traits. Learn to avoid bad clients altogether so you can build a healthier and more profitable business.
Adopt a Cloud-Based Accounting Software
Instead of playing “catch up” with other businesses and risk running low on cash, adopting a cloud-based accounting software can help cure headaches associated with cash flow. For example, instead of wasting valuable time with invoicing through manual processes like Word or Excel, a simple software like Kashoo will ensure you won’t make any duplicated invoices or mathematical errors when sending invoices to your client. Such accuracy will not only ensure your client makes payments quicker, but you’re easily able to track your income in a single, unified work space.
If you’re looking to grow your business without running into a cash related roadblock, try these three strategies (build a cash reserve, see if you’re eligible for government loans, and focus on clients and software) to ensure your business is obtaining the funds to not only survive, but thrive in the market.