Cash-flow problems kill one out of every four small businesses. It’s a phenomenon that most business owners don’t understand. They can have multiple orders coming in but don’t have the cash to purchase the raw material in order to make the finished product. Many cash-flow problems come down to not understanding where your company profits are going. This can happen even to companies that have the best business models.
- Impulse spending – Consider the cost benefit of every expense. Is this something you need? Will it bring value to the company? Don’t take on unnecessary expenses like hiring people if the job can be done by yourself or the staff you already have. Make sure you are spending money on expenses that will benefit your company’s profitability. Every dollar you spend is a dollar taken away from your profit margin.
- Being laid-back about past-due receivables – Be proactive about collecting past due payments. You never want your clients to take advantage of you and the fact that you are letting unpaid invoices go unnoticed.
- Not having a cash cushion – You never want to have a zero account balance. Make sure you always have at least two months of operating expenses covered. This will help when slow months come you will have reserves to dip into to get you back on track.
- Not having a weekly cash -flow to look at. – If you aren’t able to track your day to day cash flow you will easily find your business in a tight spot. Having a cash-flow statement helps you track your inflow of revenue and outflow of expenses so you can anticipate when big chunks of money will be going out and coming in. If you don’t have one, you’re always guessing.
Cash-flow issues have always been and will always be a challenge for every business. If you are more aware of what can cause these issues and can implement ways to avoid them. You will be way ahead of most.