If you have cashflow problems in your business, the consequences can be serious and sometimes fatal. Without the means to purchase goods and services and pay your bills, your business could cease to function, and debts could then mount up at an alarming rate. The best course of action is prevention – avoid running into problems in the first place as far as you’re able. If you do find yourself in difficulties, then you need to take action as soon as you foresee a problem, before it escalates beyond your control.
Avoiding cashflow problems
Having a sound business plan and a realistic, well-prepared budget are essential in preventing cashflow problems. These are the cornerstones on which your business foundations are built, so unless they are accurate and kept up to date, you will run the risk of running short of cash.
When you’re preparing your plan, you obviously want to make it look as appealing as possible to potential investors or financial services, but massaging the figures to make the business look like it has more potential than it actually does is a mistake that you could live to regret. If you predict revenue figures higher or costs lower than they turn out to be, you will immediately encounter issues with not having the capital to continue trading.
Another mistake small business owners make is to expand too quickly, over-stretching themselves so there is nothing in reserve should the anticipated increase in profits not materialize. Growth should be controlled and managed, and while it is an ambition for most businesses, it shouldn’t be rushed into without considering the financial implications.
Managing cashflow problems
If you’re being vigilant in monitoring your figures and using them to make sound business choices, you should be able to spot a decline that could spell trouble before it gets out of hand. Once identified, the reason for the cashflow problem needs to be addressed as soon as possible.
There could be one of any number of influencing factors that is causing the issue, from higher than forecast increases in expenses to falling sales, and it’s essential to get to the root of the problem so you can correct it. You may need to look for an alternative supplier, raise your prices, or assess the productivity of your staff. You could face having to move to more economical premises, or even letting staff go.
Making hard choices early is the only way to manage a crisis, as delaying action or hoping it will all blow over are just going to make things worse in the long run, and rather than one member of staff losing their job your whole team could be out of work. Finding new investment is an option if you are able to show that you have a sound forecast for recovery. If you have a pressing issue, you could turn to instant finance as a solution for the immediate situation, buying you the time to find solutions for problems that can’t be fixed overnight.
Prevention is essential, but there may be times when you’re affected by events that are out of your control, like an economic downturn or a competitor opening up near you. Don’t despair, there could well be a viable solution to your problem, and if you aren’t able to deal with it yourself, bring in some outside assistance to help you get back on track.
