A healthy cash flow is essential for a successful business. If a business has cash flow problems, it needs to know how to solve them.
Negative cash flow and low cash flow
The biggest cash flow problem is having a negative cash flow. Simply put, if a business spends more than it earns, there will negative cash flow and this is not sustainable.
Low cash flow is when the business is making a profit, but the profit is low. This can result in there being little left in the business bank account, resulting in a negative effect on company growth. Expanding a company is usually achieved through developing new products and services and marketing. Low cash flow will make it difficult to finance these processes in order to grow the company.
It is possible to be making a profit on paper, but still have low cash flow. If a business sells goods and does not get paid for them until they are received, then shipping delays can mean that your sales are healthy but it takes time to receive payment.
If a business offers goods and services on credit terms, then similarly, while sales may be good, delays in waiting for payment can cause negative or low cash flow.
The solutions
A temporary solution to cash flow problems is to take out a loan.
Make sure that goods are shipped promptly. If shipping delays are caused because items are temporarily out of stock, then the restocking systems need improving. The business needs to know what stock levels are required on each item to satisfy expected demand.
Try to have more cash buyers. You may need to provide discounts for people who pay on delivery of goods or services. Offer discount terms for clients paying before the standard 30-day payment due date.
You may wish to negotiate with your suppliers to extend the credit period you have with them. If your receive physical payments, make sure that they are deposited into the bank promptly – especially cheques because of the time they take to clear.
A business can also look at areas where they can save on outgoings. Examine every expenses and assess whether it is necessary. Save money by switching utility suppliers or broadband providers, and negotiate to pay some bills by instalments rather than all at once.
Lastly, an accountancy outsourcing service like Sollertia. We are experts in anticipating cash flow problems and finding solutions to deal with them.