Think of cash flow as your business’s lifeblood. If it is interrupted—and this is true even for highly profitable crafts businesses—it can lead to your demise. The four most common reasons that crafts businesses have cash flow problems are:
- Accounts receivables are late. When you are not being paid in a timely manner, you’ll always be short of cash. That’s why you may need to get over any reluctance to request timely payments from your customers.
- Inventory is turning slowly. Inventory—the crafts work you sell—is cash transformed into products. So when you’re holding unsold inventory, you’re really preventing access to cash. That’s why it’s sometimes wise to sell inventory at break-even prices rather than have it take up space without generating revenue.
- Expenses are not controlled. It may be axiomatic, but your failure to control costs can be a major factor in cash flow problems. Always look for ways to lower expenses. Even the leanest business can shed a few pounds.
- Bills are paid before they’re due. When possible, we recommend paying your bills early. Often, however, there are benefits to waiting—say, 30 days—and then paying the bill. In fact, in terms of holding on to your cash, it’s even better to get longer terms for paying back your suppliers.