By Yhordan Serpentini | February 10, 2022
When building a business, maintaining a positive cash flow is one of the most crucial aspects of keeping your company alive. The problem is that not everyone knows how to maintain a cash flow, which can lead to problems going unnoticed until its too developed to fix. There are ways to identify when your cash flow has issues, and there are strategies for solving or entirely avoiding the issue. In today’s blog, we’ll look at 5 ways to identify and avoid cash flow issues so your business can grow and succeed.
1. Invoices
One of the most common ways you can identify when your business is beginning to show signs of cash flow problems is through invoices. If you are noticing that your business is piling up on invoices, then you can safely assume that you aren’t receiving a positive cash flow since your clients are not paying you. Whether it be from overdue bills or loaning too many receivables to too many clients, your business will not make it far if the invoices keep piling.
2. Sales
If you really want an easy way to identify cash flow issues, look no further than a not-so-good sales season. Closely analyze how your sales are doing. If you notice that your business’ sales are slowing down more than in your usual season, it’s a good indicator that cash flow will be affected by it negatively. There is a multitude of factors that play into this phenomenon, and it is not always on you; it could be due to the economy, a low season, competitors’ doing, or your products aren’t in great demand at the moment—whatever the reason, stay on guard.
3. Expenses & Fees
Another great way to identify cash flow issues is through your expenses and fees, especially if they begin to increase. Perhaps inflation kicked up the cost of rent or the cost of your supplies—that’s one thing. However, when all of your expenses begin to go up in price, then there is a pretty clear indication that something isn’t going too well in the money-making department.
4. Debt
Debt is one of those instances where nobody wants, but everyone has, and in the world of business, you will be no different than the millions of other entrepreneurs. Debt isn’t always necessarily a bad thing, but it can definitely become one to those who are not financially disciplined—and everyone knows that there is no better killer to cash flow than debt. If you have large amounts of debt building up, either short-term or long-term, it is a clear sign that you are or will deal with cash flow issues.
5. Bad or No Budget
Look, if you are an entrepreneur, you NEED to have a budget in order to succeed. If you don’t have a budget or are slacking off on it, or don’t update it frequently, or whatever the reason may be, your company WILL fail over time as there are no clear distinctions or strategies that tell you when and how to pay your expenses and make a profit. It’s like our bodies trying to function on their own; without a brain to tell our organs where and what to do, our bodies can’t operate. Likewise, a lack of a clear, well-designed, periodically-updated budget for your company can be your biggest indicator for cash flow issues.
The Solutions:
There are several ways for you to solve these issues and avoid them from happening again, entirely. Make sure that you analyze your income and expenses; create a well-rounded, well-crafted budget, and that you are frequently updating it with your most recent data for the best and most accurate plan; track your cash flow constantly to analyze any drops, no matter how slight or major it may be, as it will help you begin to start searching for where an issue may be lingering.
Additionally, be sure to set up a line of credit for your business, and don’t exceed that limit or take on more credit that you know you won’t be able to pay back anytime soon; prioritize your debt payments; manage inventory carefully and reduce operating costs; negotiate payment terms with suppliers or your clients; and avoid offering more receivables than you can spare.
Disclaimer: This blog is not intended for financial advice
Sources:
- Cash flow expertise: Accounting signs of Cash Flow Problems. Firm of the Future. (2016, April 12). Retrieved February 10, 2023, from https://www.firmofthefuture.com/content/cash-flow-expertise-accounting-signs-of-cash-flow-problems/
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