Common Cashflow Problems and How to Overcome Them

Healthy cashflow is one of the fundamental cornerstones of a successful business. So much hinges on fluid cashflow. Without that in place, businesses will encounter a whole host of issues, and sometimes even failure.

Healthy cashflow should never – and we repeat, never – be an afterthought. Nurturing it consistently will help your business survive, and even thrive.

The thing is though, not all cashflow problems are created equal. In the interest of your valuable time, we’ll use this article to focus on common cashflow problems in small businesses and startups specifically.

Underestimating the costs of starting a business

As with most things in life, from holidays and house-hunting to starting a new business venture, the budget you allocate never seems to be quite enough to tick all your boxes. There are always additional expenses that crop up along the way, or hidden curveball costs that come right at you out of nowhere.

For this reason, we’d always recommend doing plenty of research or even seeking professional help with estimating your startup running costs. Run out of money earlier than expected and your cashflow will be scuppered from the offset. Taking steps to ensure your predictions are realistic helps keep your cunning plan affordable.

Failing to hit the nail on the head with pricing

As you grow your business, pricing up products and services does become much easier. A common startup problem is figuring out what to charge in the first place, though.

Carry out market research to get a better idea of what your audience is willing to pay for your offering. Even in the future, keeping an eye on what your competitors are doing will help.

As time passes you’ll naturally gather informative data about your business’s ability to make a profit. Use your financial reporting to keep an eye on profit margins, so you know when you’re charging enough or spending too much.

TOP TIP: Make an educated estimate about pricing

You can make some fairly educated decisions when it comes to pricing ready for launch. Consider how much something costs you to produce or execute, and the profit you hope to make on top.

Price too low and you won’t make enough money to sustain healthy cashflow. Price too high and you’ll miss out on vital sales. It’s a tough balance to strike but an important one to master.

Letting late payments fly under the radar

In the hustle and bustle of starting a new business, it can be easy to overlook things that are actually super important. One of those things is chasing late payments and outstanding invoices.

If you want to keep your cashflow in a healthy position though, it’s vital that you stay on top of any money that is owed to you. Good bookkeeping practices will help make sure you’re aware of any outstanding payments so you can follow them up in a timely and efficient manner.

Predicting to make too much profit too soon

Another common pitfall so many new business owners are guilty of is being too ambitious with their profitability pipeline – or should we say, pipe dream.

In your eyes, your business idea is a knockout and everybody is going to be banging down the door to get a slice of the action. Why else would you have started up the venture, right?

While this enthusiasm and ambition should never ever be diluted, it is important to be a little more rational when estimating initial profit-making.

Building up brand awareness, customer loyalty and repeat custom can take a while. Be patient, and try to remain realistic (but a bit of optimism will help too!).

Underestimating overheads

As well as under-calculating startup costs and overestimating initial profit, many new business owners are also blissfully unaware of the overheads coming their way.

If it’s a bricks-and-mortar business, things like rent and business rates can eat into your cash reserves rapidly. If you feel you need a helping hand and employ right away, salaries and employee contributions can fast become a monetary burden.

Working from home? Great, but think about the extra electricity, water, heating, gas, internet… And make sure you claim for every possible allowable expense against your tax bill.

How and why should I protect my cashflow?

Watch out for the most common cashflow issues outlined above, but there’s proactive action you can take, too.

Start as you mean to go on – Prioritising the strength of your cashflow from the get-go is a great way to bolster the financial foundations of your venture. Making cashflow good-practice part of your daily protocol will help you set up healthy habits and avoid hiccups further down the line.

Stay on the right side of HMRC – Good cashflow means you’re less likely to let your accounts go awry and less likely to miss important payment deadlines. Avoiding issues like this at all costs will keep you on HMRC’s good side – a place all business owners want to be.

Grow and scale your empire – With a solid financial profile, you can grow and scale your business with the confidence that you’ve got the cash to back you up. With rocky foundations and sticky cashflow, development is more problematic.

Hopefully these nuggets of advice have spurred you on to make sure you’re not falling into any avoidable traps with your new business cashflow. If not, go right back to the top and digest it all again because as the old adage goes, cash(flow) is king.

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Stephanie Whalley
Serial snacker, compulsive cocktail sipper and full time wordsmith with a penchant for alliteration, all things marketing and pineapple on pizza.