Businesses can fail for any number of reasons. A quick search on the internet, though, can show that a large number of business that fail do so because of poor cash flow. By understanding the common causes and warning signs of poor cash flow, any small business owner can start to take corrective action to make sure they have the funds necessary to operate month in and month out. While this list is not comprehensive of cash flow causes and warning signs, it is a good place to start to better understand the money coming in and out of your organization.
Time to Scale Up
Every business owner wants to see their business grow. But growth also invites risk. Increases in the number and sizes of projects can require more staff, larger working spaces and more equipment. A business in a high-growth phase is subject to having poor cash flow due to everything surrounding it. The best course of action is to plan ahead, monitor investments and practice good timing with your cash flow.
Poor Planning & Monitoring
If you have never sat down to map out your cash in and cash out then you are primed to have cash flow problems. Keep in mind that strong profits do not always equal strong cash flow. From the unexpected truck breaking down to late payments on invoices, any number of things can impact your cash on hand. Cash flow is something that must be monitored on a continual basis.
Nearly any industry can be subjected to having to wait 30, 60 or even 90 days to receive payments. While the books can show strong sales and profits, those spreadsheet numbers don’t pay the bills until the funds are actually received. The occasional late payment shouldn’t derail your operations. But habitual late payments across your customer base can start to negatively affect your organization.
Track how long it takes each invoice to be paid. Your findings should tell you the health of your organizational cash flow. If what you find is alarming consider implementing a few tactics to increase the speed at which you get paid. You can offer discounts to customers for paying quickly, set reminders to respectfully follow up with outstanding invoices or utilize invoice financing solutions like our BusinessManager program.