This is usually the first indicator of an impending cash flow problem; you really don’t want to let your creditors down by delaying payments but what is a small business owner to do?
Cash flow problems can be critical for businesses and are particularly hard to swallow when you’ve done everything right in terms of forecasting, record-keeping and budgeting.
Timing is everything.
Many profitable businesses, on paper, get into difficulty because the amount of cash coming in doesn't reconcile with the amount of cash going out.
"Poor cash-flow management is causing more business failures today than ever before,” Philip Campbell, author of ‘Never Run Out of Cash’.
Profit does not equal cash flow.
"There is a secret that very few business owners have discovered, and the accounting community has not done a good job revealing: knowing whether you earned a profit or created a loss is not the same as knowing what happened to your cash," Campbell says.
Many business owners experience seasonal fluctuations in their cash flow. For example, with Christmas on our doorstep, perhaps this is the busiest period in your calendar year and you may need short term cash solutions to stock up on inventory and to pay temporary staffing numbers.
You could don your best suit and make an appointment with your bank manager but accessing the traditional sources of credit can take too long.
Cash flow problems require quick solutions. You might not have time to spend days putting together a business case or developing complex cash flow projections.
When a cash flow shortfall arises, some companies resort to drastic measures to stay afloat e.g. they might liquidate assets, or delay payments to vendors or put the boot down on clients who owe them money. This is no long-term solution. It’s like robbing Peter to pay Paul. You end up chasing your own tail in ever decreasing circles until it’s game over.
Plan & Prepare
Our advice is make a game plan. Start with your strategy, analytics and measurement projections. And ask yourself some hard-hitting questions…How much cash in the form of customer payments, interest earnings, service fees and the partial collections of bad debts? What other sources are you going to get in, and when?
Understand when money will be spent, and on what. Have a line item on your projections for every significant outlay, including rent, cash inventory, salaries and wages, sales and other taxes withheld or payable, benefits paid, equipment purchased for cash, professional fees, utilities, office supplies, debt payments, advertising, vehicle and equipment maintenance and fuel, and cash dividends. And everything and anything else that impacts on cash.
See if there is leeway and wriggle room on your receivables. Offer discounts to customers who pay bills on time. Require credit checks on all new non-cash payment customers. Don’t overstock inventory - it’s a waste of space and a drain on your cash. Issue invoices promptly and follow up immediately if payments lag. If your business allows it, try to get cash deposits as orders are made.
If you discover that you will need access to additional capital in order to keep your cash flow healthy, the good news is, you've got more options than ever before.
At Linked Finance, this is our speciality. And we cater for businesses that need solutions to short term flows, fast. I’m talking really fast. I’m talking about a 2-minute online application process and an 8-hour turnaround time on a decision for loans between €5k and €100k.
Give us a call or find us online. And if speed is a concern, do it now. Just complete our 2 minute application to get the ball rolling...