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Cash Flow Problems in Business & Its Solution


Main fuel that drives business is “Cash”, to which financial analysts consider most important indicators of business's financial health. As it is said, a well-managed cash flow indicates healthy business, while the cash flow that is poorly managed causes various business problems. It has been observed that companies that are facing crunches of cash flow simply throw money at that particular problem. This process is considered to be a temporary solution to that issue as cash flow management needs more than a financial fix. Cash flow management requires a kind of holistic approach that helps in making entire supply chain of company work more efficiently. And after all, the faster sellers are paid, the faster goods move from seller to buyer.

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Actually, growth can also bring serious problems to a business, depending upon the type of growth. Like few entrepreneurs all growth is good but getting a single large order or growing sales too quickly can result in serious cash flow problems. And these issues are enough to derail your business permanently. Most businesses encounter cash flow problem but it can be prevented with the right strategy. Few common cash flow problems and its solution are as follows:

1) High Overhead Expenses

High overhead expenses may cause harm to cash flow of your business. As the high overhead expenses are persistent so they are very challenging. And until the problem is corrected, these expenses affect your cash flow every day.

Solution: The solution to this problem is to audit your expenses and where ever you can just cut back. But be careful too much cut could also harm company’s business. So, it’s better to opt for cheaper options. In fact, every business should regularly audit expenses in order to ensure overhead expenses always stay in line.

2) Slow-Paying Invoices

Most common issue of cash flow is slow-paying invoices because as a small business, one has to offer 30 to 60-day payment terms to their clients. However, small businesses can’t afford to wait for longer time as they need as soon as possible. Eventually, it has been observed that even if the business is growing quickly, slow payments create a financial problem that affects business seriously.

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Solution: The solution of this problem is to use invoice factoring for funding slow-paying invoices. As it will help in improving cash flow immediately and allow you to offer payment terms.

3) Excess Inventory

Companies that manufacture goods and re-sellers that keep their warehouse stocked with products may get affected by this problem. If the too much product is manufactured, then it might end up sitting on shelves and will tying up cash flow also.

Solution: Before being used or sold in the manufacturing process, fine-tune your inventory in order to make sure that you stock items for short period of time. Depending upon your sales forecasts, volume supplier capabilities, and available cash, one keeps that amount of product stocks. Always level inventory carefully as running out of stock at the right time is a way to lose valuable clients.

Moreover, to do successful cash flow management, all three commerce flows –information, goods, as well as funds--are working jointly together in order to accelerate money movement through the process of supply chain. Also, cash flow should be managed wisely for better supply chain management as it will help in creating strong as well as healthy business.

About ALCOR Mergers and Acquisitions

Alcor M&A is a leading advisory firm providing financial services with an emphasis on customized solutions in the areas of Investment Banking, Corporate Financing, M&A advisoryJoint Venture AdvisoryPrivate EquityDebt Financing  and  International Business Development.  These Services leverages insights,  relationships and a culture that emphasizes a strong orientation towards excellence.

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