What is Cash Flow?
Cash flow refers to the money coming in and going out of your agency - the accounts receivable and accounts payable. If money is flowing correctly, you won’t have any problems paying your expenses and reaching your business objectives. However, life isn’t perfect, and we often find little (and sometimes not so little) problems in the cash flow. It’s imperative that these problems get solved quickly, or they’ll turn into much bigger problems later down the line. Let’s take a look at some of the most common issues now.
Cash Flow Challenges
In the dynamic realm of digital marketing agencies, grappling with cash flow challenges is paramount. These challenges span a spectrum, from grappling with delays in payment processing, often due to electronic intricacies, to addressing the impactful shortfall of low sales that can dent yearly earnings. Overspending, be it on equipment or office space, can tip the balance, requiring meticulous financial scrutiny for mitigation. Meanwhile, rapid, unsustainable growth can strain resources and necessitate short-term loans, demanding a delicate balancing act. These hurdles, if not navigated adeptly, can cascade into operational inefficiencies. It's crucial to promptly address these challenges and consider strategies like hiring a Fractional CFO for sustainable scaling. Let's go over some of the major cash flow challenges in more detail.
Delays in Payment Processing
With electronic payment processing, there can be a delay between the payment hitting the bank, and that money becoming available for your use. While there’s not much you can do (no, yelling at the poor person at the bank over the phone won’t work), we can prepare for these situations. One option is to offer cash payment options and incentivize them for your customers. If cash isn’t your deal, you can connect your bank or credit card information straight to your invoicing software, which usually works faster than the bank having to deal with the payments.
If sales aren’t what you expected for this quarter (or year), it can greatly affect your expected annual earnings. While it may be an external issue, such as a pandemic causing your business to close temporarily or a natural disaster, there’s a possibility that your marketing isn’t resonating with potential buyers. Look at your outbound sales strategy using an analytics software. Can a cold email be more personalized? Can a phone script be tweaked? Also consider your marketing strategy, and how inbound sales are going. Are you following up with current customers? Are there any negative reviews making the rounds online?
Sometimes it happens. We spend a boatload on new computer equipment or leasing a bigger office - and it turns out to be too expensive. While a one-time purchase can usually be easily fixed, monthly expenses that get out of control quickly are more difficult to wrangle. In this case, it’s best to hire a CFO or financial expert to see exactly what the business is overspending on, and how to eliminate or mitigate those costs.
While a business’s goal is usually to scale up, sometimes it happens too quickly for the business to keep up. If you take on too many clients and find that you don’t have enough money to satisfy their needs, you’ll find yourself between a rock and a hard place. The fastest way to recover from a situation like this is to get a loan from the bank - and pay it back as soon as you get paid by your clients. The idea is to do what you have to do with the money and get the loan out of the way to avoid interest. It’s important to note that this is a situation that can get out of hand very quickly - leading to operational inefficiency, and fixing it costs money, time, and resources. Improvising may get you out of a bad situation quickly, but you should expect the same problem to happen again in the near future. Look at hiring a full-time CFO in order to make sure your business can scale sustainably and avoid bottlenecks such as this one in the future.
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Disclaimer: This article contains information and opinions from Adam Kae & Associates, and the information and opinions should not necessarily be seen as the best possible solutions for your business. Please contact us at email@example.com to help you find the best solutions for your business.