Small businesses are particularly susceptible to hidden cash flow problems. Find out what the most common hidden barriers to cash flow are and how you can plan for them.
A healthy cash flow is top priority for small businesses to have viable long-term operations. However, most small businesses at one time or another will encounter hidden cash-flow problems that can be damaging to their business. Thankfully, with some preparation and the right strategy in place, you can address the common problems that pop up with cash flow.
Low Profit Margins
If you operate in a sector such as fast-moving consumer goods (FMCG) or retail, your business may at times need to sell products at low prices to stay competitive and attract customers. However, doing this over the long term can hurt your bottom line.
To combat this issue, look at raising the prices of particular products that have weaker margins. If you simply cannot raise prices, you may want to consider dropping must-sell products to a certain reduced price point.
Overhead expenses in your business are the costs of items such as your rent, utilities or company vehicle. These items might seem like essentials, but their ongoing expenses can hurt the cash flow of your business.
Do away with having high overheads by auditing all your costs and seeing where you can cut back. For example, instead of owning the company car, consider leasing it along with other expensive business equipment.
Additionally, keep an eye out for the best business deals in utilities. For example, look at bundling your mobile and internet together if it works out cheaper.
If you have excess stock sitting on the shelves, this will lead to a cash-flow deficit and may even result in storage costs if it’s left in a warehouse. Ensure you manage your inventory well so that you store stock items for the shortest possible time before it’s sold.
Monitor your inventory levels regularly to make sure your key products are in stock, otherwise you may stand to lose clients if they have to wait on particular items.
While you wouldn’t think of business growth immediately as a cash-flow problem, if not managed effectively it can affect the health of your cash-flow cycle. Say you have landed several clients that will guarantee extra revenue. You may still need to invest in employees and resources to meet their demands – both of which take time to implement.
To avoid getting caught out, plan a cash-flow forecast that could unveil patterns of when your business is likely to grow. If there are particular times of year that you tend to take on new clients or bring in new products, for example, you can account for this in your forecast and plan for extra spending around that time.
You could also deal with the costs that come with unexpected business growth by accessing a line of credit from the bank, such as a short-term loan.
This information is factual only and is not intended to to imply any recommendation about any financial products or constitute advice. You are responsible for consulting with your own professional tax advisors and financial advisors concerning specific tax or financial circumstances for your business. Intuit disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your business finance. If you have questions regarding accounting issues specifically related to your industry or your business circumstances, you should consult with your own professional tax advisor, accountant, attorney, industry expert or professional association.