5 Areas Where People Struggle with Cash Flow in Their Business

5 Areas Where People Struggle with Cash Flow in Their Business

Regardless of where you are in the world, cash flow problems that small business owners face are the same. If a business has to be viable in the long term, it's important that you be able to generate positive cash flow in a very consistent manner, year after year. When you have surplus cash it catalyses the growth of your business and if you want to steadily grow your company, you will have to focus on profitability and generating surplus cash flow; this will have to be done on a sustainable basis.

 

Cash Flow Problems- The Signs

 
  • Non–payment or late-payment of supplier invoices
  • Late payment of taxes
  • Late payment of employee superannuation
  • Direct debits getting dishonoured
  • Late payment of wages to your staff
 

If the tax office or suppliers take legal action against your company, this is more extreme evidence that you are facing cash flow problems. If all these things sound familiar, it's time you took immediate action to address these problems as they can stress you out and affect your personal life too.

 

The Problem Areas

 

A number of small businesses face cash flow problems and the only way to ensure the financial health of your company is to identify and solve these problems without delay. Here are 5 areas where people struggle with cash flow in their business:

 

#1 Weak gross margins

 

Weak/negative gross profit-margins are one of the key problem areas with reference to cash flow. In most cases, this problem tends to be small at the outset and goes undetected for some time; eventually, the result is all the same – you face a cash crunch. This problem can impact companies that operate in highly competitive markets as it compels you to lower prices. If you are not careful and set the prices too low, you can end up generating a loss

 

Solution: The one way to avoid this is to determine what the all-inclusive cost of delivering your services and products is. Now compare those against revenues that are being generated by those services and products. Modify or eliminate the programs whose margins prove to be too low

 

#2 High overhead expenses

 

These are the costs that are associated with running your business such as rent, phone etc. In some instances, these expenses can overstep the revenues you are generating and the subsequent imbalance can impact your available cash

 

Solution: Review your overheads & eliminate expenses that aren't absolutely necessary. If a particular expense is required, then look for options that are less expensive

 

#3 Money tied-up in slow-paying invoices

 

Typically, small businesses that cater to commercial clients, have to allow 30-60 days to pay an invoice. This ties-up cash in accounts receivable. So, your business may be profitable, but it could still be cash poor. Check your financial statements and if you see a large number of unpaid invoices and very little money in your account, slow payments could be the culprits causing poor cash flow

 

Solution: Implement better collections; first follow-up with all your clients & make sure they pay on time. You can also consider offering clients an early-payment incentive. Consider using invoice-factoring to finance all the slow-paying invoices.

 

#4 Too much bad debt

 

This occurs when you extend any credit to your commercial clients who have bad credit. It can be a very serious problem as it's very difficult to collect. At times, the best option is to write it off & move forward

 

Solution: In order to solve this issue; provide credit terms (net 30 to net 60). This should be given only to clients that have good credit. Clients with bad credit should prepay you before they receive any product or service

 

#5 Excessive inventory

 

This is applicable only for the companies which sell products. They buy too many products and this ties their funds

 

Solution: You can sell-off inventory, but its best to maintain lean inventory. It's better to purchase in larger quantities only when you have received a confirmed order from the client.

 

It's also a good idea to work with a Certified Public Accountant if your business is facing severe cash flow problems. They will help you understand what the exact problem is and will help chalk-out the best solution.

   

About the Author

 

Ben Fewtrell is a sought-after Business Coach, Keynote Speaker and trainer who has featured in Virgin’s Inflight Magazine and Entertainment Portal, SKY Business and “Secrets of Top Business Builders Exposed”. He is also the host of the popular Business Brain Food Podcast where he interviews leading experts on anything and everything business.

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading...

Leave a Reply

Your email address will not be published. Required fields are marked *

Top Rated Articles

How your company can adapt to the Digital Revolution

Over the last couple of years, technological innovation has brought about a rapid change in the customer service landsca

LEARN MORE

Will Marketing Automation Help Your Business Grow?

Marketing automation software can benefit your business in a number of ways. It is a great way to increase traffic, enco

LEARN MORE

How CRM Can Maximize Customer Lifetime Value (CLV)

"Keep your customers always on the frontline," this is a key philosophy to running a successful business. Customers are

LEARN MORE

Recently Viewed

How I changed my Facebook Business Page Name

I started a Facebook page for my business many years ago. I had spent thousands of dollars running ad campaigns and gain

LEARN MORE

What is the Attitude of a great team member?

One of the keys to being really successful in business is having the right people in your team, and I think that goes

LEARN MORE

How much does Business Coaching cost?

If you are looking to find out an approximate cost for business coaching, then this article is for you. Whilst business

LEARN MORE
  • Over the past 6 months the incredible team at MMP have supported us to shift our attitude towards our business & month on month our revenue is increasing to the point we will be able to employ additional staff to support our business goals long into the future. Do not regret our decision one single bit!

    • Emma Reece

  • Working with my coach has enabled me to see the areas where my business is failing. This was pretty confronting to me to be honest. MMP has the tools to improve these areas and the guidance on how to implement them.

    • Sharon Robinson

  • I have been working with Max My Profit for approx 3 years now, and over that time I have learnt a lot of things about not only what it takes to run a business, but I have also learnt things about myself. I don't believe i'd be the person or have the business I have today if it wasn't for Max My Profit and our Business Excelerator. Great team to work with if you want to take your business serious!

    • Ben Choy

  • As a new client for Max My Profit (MMP) it has taken no time at all to realise the benefits of business coaching. Despite many years of senior management experience starting a new business requires best practice systems and processes built on a solid platform of detailed planning. I look forward to the benefits of adopting the formula being shared by MMP.

    • Campbell MacLeod

  • Max My Profit Are truly awesome at what they do. They have helped me over the past 12 months to get off the tools in my business and start working on my business. I am looking forward to 2019 with enthusiasm not concern. Thanks so much.

    • Aaron Kemp

  • If you are committed to Growth the Max My Profit Team has the tools and expertise to excelerate all areas of your life. They Care, They Listen, They Understand You as an Individual first then they focus on Your business. Thank you Max My Profit my rating is a 6/5 - Kindest Regards The Mr Handyfix Team

    • Catherine Kavadas

  • The team at Max My Profit are an absolute pleasure to deal with. I love working with a team who is on top of what they are doing and have a clear view of what they are working on with you and helping ensure you get to the end goal.

    • Lauren Watts

  • I have been working with MaxMyProfit over the years and what they do for SME's in growing their business is fantastic. Also due to there knowledge and their supporting material for companies across the 5 lifestyle stages and assisting them through this process day in day out is extremely comforting as a small business owner and have referred them many businesses over the years.

    • Steve Laingy

  • Working with a business coach from MaxMyProfit has been one of the best things I have done for my business. I had several other coaches before MaxMyProfit but these guys are a step above the others. I have seen a significant increase in sales, now have a business that can run itself and the coaching program has paid for itself many times over.

    • Matthew Kitchin

  • Much more than just business coaches. There is an absolute treasure chest of business knowledge in their members site.

    • Iain Campbell

  • Max My Profit are unique as they really partner with you to develop and implement a plan that will drive success for the business. I was hesitant to proceed as previous business coaches tell you what to do and rely on you to implement.

    • Michael de Haan

  • I attended one of Max My Profits introductory events in Melbourne. Having been an accountant for almost 30 years, I was somewhat sceptical. Boy was I wrong. I not only enjoyed the presentation, but I gleaned so much from just that session.

    • Daniel Odd

  • These guys are an absolute wealth of knowledge for Small Business. The programme and support networks they have set up ensure learn more every day and can take your business from good to great. Thanks so much.

    • John Butler