Nothing troubles small businesses like managing cash flow problems. If you don’t get the money you are owed, you may not be able to cover your outgoings or plough money back into growing your enterprise. This can be even more of a worry if profit margins are small.
Keeping an eye on cash flow is essential
As a small business owner, it’s of paramount importance that you know what’s coming in and what’s going out. Efficiently managing cash flow can mean the difference between success and failure.
The problem is, getting the balance right can be tricky because suppliers and customers have different priorities. Here we take a look at some of the common cash flow problems – and warning signs – to watch out for, as well as the steps you can take to avoid them.
If your small business accounts are all over the place, it can be very hard to keep tabs on cash flow. The best way to avoid this is by being meticulous about bookkeeping and by monitoring your accounts on a regular basis.
If everything is tidy and organised, this will help you to get a clear picture of your firm’s financial position and help you to spot a looming cash flow crisis. You can then take steps to avert any potential problems. Equally, even when you have money in the bank, it’s important to retain this level of discipline.
Late payment can be a source of continual annoyance for small companies. Not getting paid on time can lead to cash flow issues, which can prevent growth – or even risk putting you out of business.
As a small business owner, you need to prioritise prompt invoicing and make it as convenient as possible for customers to pay you; you also need to be proactive about chasing unpaid invoices.
In addition, you could introduce an early payment incentive or consider tightening your terms to avoid wasting time and energy tracking down overdue payments. Think, for example, about charging interest on late payments.
A dip in business
If sales take a plunge, this can mean a sudden drop in income, which can cause cash flow problems. To avoid getting stung, you need to keep a close eye on sales and monthly income. If you see an unusual pattern, you can take steps to try to avoid a fall in cash flow. You might, for example, be able to revise business practices, cut costs or take on more orders.
If you take on more business than you can fulfil, there is a risk that you fail to deliver – or deliver work that is substandard. This can give the customer an excuse not to pay and could potentially mean a lost contract.
The key here is to be realistic about your workload and the amount you can achieve. You need to be able to fulfil orders to your usual high standard to keep clients happy.
Having too much debt
If you have a lot of debt in your business, this can become costly and start eating into profits. It could also put a black mark on your credit record.
The best way to keep debt at a manageable level is to carefully balance the books and do all you can to ensure the amount going out is matched by the amount coming in.
Once again, you need to be as proactive as you can with outstanding debts and late payments.
Cash flow is king
Cash flow is the lifeblood of every small business, so it’s key to keep it under control.
By finding ways to avoid cash flow problems, you will help your business to thrive.
To see how cash flow forecasting and reporting can help your business this year, sign up for a free trial with Intuit QuickBooks.