How to Solve Cash Flow Problems in Business

Graphic showing dollars flowing through an air flow to represent a Cash Flow.
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The saying, "Cash is King" means that a business must have the cash to operate. But a business with large fluctuations in cash flow must find ways to continue to pay the bills even when cash isn't coming in.

Some types of businesses with cash flow issues include:

  • Seasonal businesses with high revenue in season and little revenue for the rest of the year;
  • Startups who haven't generated enough income yet to pay their bills;
  • Technical and contract businesses that work on projects and must have the cash flow to pay bills and employees until the client pays;
  • Builders and construction companies must also pay bills while waiting for a construction project to finish and payment to be received.

Sure, you must pay some expenses at all times, like rent and utilities, and you will need to pay employees for that extra time they work during seasonal highs. But, resist the urge to spend on big-ticket items that can be put off. Putting excess cash into a savings account or money market fund for the lean times can help you avoid having to borrow during those times. Simply put, DSATM; Don't Spend All the Money.

Create and Use a Business Budget

If your cash flow situation is cyclical, create a yearly budget to see how much cash you will need each month to pay recurring bills. Then build in that savings from the higher cash months to see how much you will need.

A budget is especially necessary for a startup, and a pro forma (projected) budget will be required for a startup business to receive financing.

Get a Line of Credit

Another solution to cash flow lows is to work with a local bank to set up a line of credit. Sometimes called a working capital credit line, these loans put money into your checking account to use, and you can pay back as you get funds later.

One source of short-term loans is CAPLine loan financing through the Small Business Administration (SBA), which helps small businesses meet short-term and cyclical working capital needs. CAPLine loans are available for contracts, seasonal, builders, and other working capital situations.

Negotiate With Vendors or Use Trade Credit

Developing a good relationship with vendors, and asking them to work with on repayment of their bills, can help with cash flow. Trade credit is essentially asking your suppliers to finance your business. So, you will need to put them at the top of the list to be repaid when cash is coming in.

Find Additional Revenue Streams

Work with your management to come up with new ideas for business lines or new products or services that can pick up the slack during those low cash months.

Employee Issues in Cash Flow Fluctuations

Gwen Moran at suggests letting employees know of your situation. If they understand the situation and know you are trying to bring in new cash, they may be more willing to accept pay cuts or temporary layoffs. As a business owner, you are legally obligated to pay employees. Failing to pay them can mean lawsuits and scrutiny by state and federal regulators. It's never a good idea to let your employees bear the burden of your failure to manage your business.