Any business with a good cash flow is more likely to succeed, be it a home business or a corporate enterprise. Having a good cash flow shows that you’re actively managing your income and expenses. It also means you have enough saved for emergencies and investments. Without it, your business could experience financial difficulty. Here are four common business cash flow issues, and what you can do to avoid them.
A cash flow problem can start small. It might only become noticeable when it’s already created severe financial damage. If you don’t manage your cash flow regularly, things can fall through the cracks, and you’ll be short of money. Spend some time mapping out your income and expenses. This will show you your average cash flow, where your money goes and what it is for. Doing this also highlights which expense you can do without.
What expenses could you do without? Analyse your costs to ensure that they’re all essential to your business. Can you lower them by using another supplier or service provider? You can channel expenses saved into a rainy day saving account or into making more money for your business.
If your finances are tied up in stock, you’re making an avoidable mistake. In the event where you need to pay for an unexpected expense, you won’t have enough liquid cash able to cover it. To prevent this, carefully and realistically analyse your sales cycles. Check which stock items move faster than others. You’ll have a better idea of which things to stock, and where to save money.
A common reason for having flow problems is unpaid customer invoices. Do you have many customers who owe you money for products or services rendered? Debt collection is a small cost to pay to inject outstanding cash into your business.
When you have a healthy cash flow in your business, you gain freedom. You can make business decisions that you’d never be able to make without money. Don’t let the problems listed above keep your business from doing that.