Properly managing the cash flow of your business is vital for ensuring its long-term viability. While it is natural for cash flow to fluctuate over time, poor cash flow management can lead to serious financial issues or insolvency. Knowing how to tackle the most common cash flow problems is therefore key to ensuring that short-term difficulties do not jeopardise the long-term future of your business. With this in mind, we have outlined the key common cash flow problems that many businesses suffer from, along with some cash flow management tips to prevent them.
What Are The Most Common Cash Flow Problems You’ll Encounter?
Late Payments
Payments not being made on time from debtors or clients can put a serious strain on the cash flow of your business and make it difficult to cover day-to-day operating expenses. This common cash flow problem can also make it hard to ensure that employees and creditors are being paid.
Excess Stocking of Inventory
Overinvesting in stock is another common cash flow management error that can cause issues for your business. Spending money on stock that does not get sold is ultimately wasteful, and indicative of poor inventory management. Investing in excess stock also reduces the company’s liquidity, tying up funds that could be put to better use elsewhere in the business.
Over-reliance on Particular Clients or Customers
The loss of a large client is always going to be a blow to any business, but if your company is relying heavily on a small number of customers then the health of the company can be considered quite poor. In this situation, your cash flow becomes highly fragile and unpredictable.
Poor Financial Planning
Inadequate attention to budgeting makes it much more difficult to foresee potential problems and adjust as needed. Having a strong financial plan is important to ensure that your business is not spending or borrowing money outside of its means.
Low Cash Reserves
A reserve of cash is invaluable for allowing a business to quickly respond to financial emergencies. Cash helps to soften unforeseen financial issues and this is vital for ensuring that your business is able to handle surprises without majorly disrupting your financial plans.
What Are The Solutions To Common Cash Flow Problems?
Cut Down On Costs
The most obvious thing to do when facing cash flow issues is to reduce your outgoings as much as realistically possible. Always be conducting reviews on where your business can be saving money. This information can be vital should the need arise to dial back your expenses.
Sell Off Assets That Are Not Being Used Effectively
Releasing cash that is being held up in inefficient assets can be a good way to gain some short-term relief from cash flow issues. This money can be reinvested elsewhere in the business where it can do more good.
Diversify Your Client Base
Minimise your reliance on individual clients as much as possible, as this will help to keep your business’ revenue far more stable. Unexpected problems can hit any company, and if you are heavily reliant on a small number then you risk a significant portion of your profits being lost should those businesses have problems of their own. A diverse client base allows you to futureproof your business against these issues.
If your business is suffering from any of these common cash flow problems or other financial issues and you need some expert advice, then get in contact with Ballard Business Recovery today. Our team of experts can provide you with tailored, helpful advice to assist you in getting your company back on track in the face of cash flow issues.
