Cash Flow Management- Problems and Solutions

Cash Flow management is one of the main challenges for small businesses. Proper budgeting skills can forecast cash flow out 15-30 days. In this article we will discuss what cash flow is, common problems, and solutions to better understand and manage cash flow.

Cash Flow management with man holding a tablet computer working on problems and solutions Simply put, Cash Flow is the flow of usable cash for purchases/business operations. Basically, the management of cash coming in and cash going out. Every business is going to have a product or service to sell and generate cash. Retrospectively, every business is going to have some costs in order to produce the product or service they sell. As simple as it may sound, many companies find themselves unable to make payments, or accounts payable, because they simply do not have the cash to pay it right now. In this article, we are going to talk about the main areas that commonly affect Cash Flow (CF) and solutions to these problems.

Accounts Receivable


Accounts receivable is the money people owe you for purchasing your product or service. If you’ve ever heard the term “cash is king” then you may understand it from a business perspective. The quicker you can get paid for your product or service, the better. However, many companies give their clients or customers invoices which give them a set period of time to pay for their product/service or they extend credit. For instance, say you own a Lawn Care company and you’ve just completed your first lawn and invoiced the clients a bill for $100 to be paid within the next 15 days. You were hoping they would pay you in 5 days, because that’s when your bill is due for your loan you took out to buy all your lawn mowers. The client not only forgets to pay you until the 16th day (after a friendly reminder that their bill is due), but you are now scrambling to pay your lawn mower loan. This may sound like a silly mistake but, in reality, it happens more than you’d think.


So what can you do to prevent your new lawn mowing company from going under? Here are a few suggestions taken from the Pros:
  • Negotiate the terms of your contract with clients
    • Pay up-front or directly after service is performed
    • Decrease the amount of time the bill is due
    • Late fee’s (last resort)
  • Set up monthly direct deposit to accounts receivable
    • Most re-occurring home service companies go this route. Prior to lawn service, have your clients sign up for a monthly subscription to your services. That way you know exactly how much you are getting paid, from who, and when.
  • Increase prices
    • If you find that you are still scrambling with your cash flow management, it may be indication that you need to increase the price of your lawn service to make up for lost cost.
Check out America's Best Bookkeepers  



Inventory is another good example of how businesses find themselves in Cash Flow management scramble. For this problem-example, we’ll use a widget manufacturer to understand more clearly. Let’s say you just opened a small business making widgets and selling them to retailers. You found a retailer who loves your widget and wants to buy 1,000 of them from you to sell at their store. O.K. great! You’ve done the math and it costs you $2.00 to make each widget and you sell it to the retailer at a wholesale price of $4.00, and they sell it for a retail price of $8.00 a widget. But wait, if you make 2,000 widgets, the price per widget goes down to $1.75. You figure this is the better deal. Now you have 2,000 widgets and you’re out $3,500 when you were originally supposed to have only 1,000 widgets and be down $2,000. Bills start rolling in and you’ve only sold 200 widgets, and 30 of them had to be returned because of malfunctions. I could keep going but you get the point. Clearly you now have more widgets than you can sell and now you are scrambling to pay your bills.


    • Although the bulk option may seem more appealing because price per widget cost goes down, you still don’t know how your widgets will do on the market. Take it slow and don’t create more inventory than you can sell right away. These costs add up and can come back to bite you.
  • Plan for damages/malfunctions
    • You must never assume that every widget that sells at the retailer is going to function properly (as much as you’d like to think your widget is the best), technology does fail. You must budget for these returns in advance, even if that means accounting for more malfunctions than actuality in the beginning. Better safe than sorry. By the time you’re up and running the largest widget factory in the world, this type of forecasting will become easier.
  • Know your retailer’s terms
    • Where the items are being displayed in the store
    • How quickly do they pay you when you invoice them for your widgets
    • What they charge for damages/malfunctions

Accounts Payable


Sometimes events happen in life that cause unforeseeable decrease in sales and you are coming up short to pay your vendors. For this example, we’ll use a restaurant. Let’s say you’ve been in business multiple years, sales have been good, and you’ve always paid your vendors on time. There’s a huge storm that lasts for about a week, severely hurting your restaurant’s sales, therefore causing you to scramble to pay your meat and vegetable vendors. Typically, you pay them when they deliver the food to your doorstep, but today when they come, you are short the cash to pay them immediately.


  • Negotiate with your vendors
    • Vendors typically will negotiate terms of payment, whereas banks do not. Instead of whipping out your rainy day (literally) credit card with outrageous interest rates, talk to your vendor first. See if you can negotiate the terms of your payment. Chances are, if you’ve been a loyal customer for various years, and have always made timely payments, your vendor will let you extend your payment period.
  • Make sure you have enough in equity to cover your costs.
    • This would be the “rainy day” example. Life happens and sometimes businesses take a hit. Although you can’t prepare for when your business will take a hit, you can be prepared for when it happens.


The goal for any profitable business is to have more money coming in than coming out. You always want to make sure you’re making more than you spend. This is what a well maintained budget is for. By maintaining accurate bookkeeping, you can forecast cash flow out 15-30 days in advance. However when life happens and you find yourself temporarily spending more than you are making, make sure that the cash deficiency is covered by equity or available debt. Before you run to your credit cards, make sure that the debt + interest < the return on the investment. In conclusion, understanding your budget is always the best defense. Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.