Maintaining cash flow is the most important task in a business. Unless money is coming in, your company will not be sustainable. Luckily, most cash flow issues are easily avoided and due to one of the following three problems.
1. Your assets are tied up in inventory.
There are several benefits to keeping a large and diverse amount of inventory. You can fulfill orders quickly and supply customers immediately, which is important in a world where no one is used to waiting.
However, it is important to keep a balance. Maintaining too much inventory is one of the most common cash flow problems in small business. You fail to make profit on inventory that does sell immediately; in addition, you are left storing and keeping records on all of this product. Keeping only what you will reasonably sell in a short time frame will free up your time while leaving you with more money to run your business.
2. Your expenses exceed your means.
Going cheap in some areas can hobble your business before it even gets off the ground. As the saying goes, you have to spend money to make money. This is especially true when your company is in a growth phase. However, having insanely high overhead is one of the most devastating cash flow problems due to growth.
High expenses can keep you from having the cash flow to pay your bills and continue operating your business. It is important to learn how to avoid cash flow problems. Periodically list your expenses and try to come up with ways to cut back. In many cases, this can be done without any sacrifices. For instance, many people can refinance debt to keep payments lower without any effect on product or customer experience.
3. You aren’t even aware of potential cash flow problems.
Ignoring your books completely is one of the most common and destructive cash flow problems a business might experience. This makes it difficult to identify and adjust for issues before they have completely taken down your company. You should spend time accounting so you know exactly where your money comes from and where it is going.
Once you understand where the money is really being made, you can begin to optimize it. Similarly, you can also identify problems before they compromise your business. For instance, many businesses suffer from cash flow problems even when technically in the red because they are failing to collect payments from customers. Entrepreneurs who keep a close eye on cash flow can resolve these problems early.
Although running a business requires passion, it ultimately needs a constant net profit. Watching for cash flow problems will ensure that you have the best possible chance at success.
