Cash flow issues have a big impact on businesses, especially small businesses or those at start-up stage. They are not always predictable and that’s often problematic if there isn’t much of a financial safety net to work with. Being aware of potential cash flow issues before they even arise will give you a big advantage in the long run – here are five that could easily take you by surprise.
Issue: too much stock
Having stock is important for a business that sells products – and you can never have too much stock, right? Wrong. One of the trickiest cash flow issues to overcome is being overly enthusiastic when it comes to buying stock. Once the stock is paid for you have no liquidity and if it doesn’t sell you could find yourself with nothing in the bank with which to pay your own bills.
Issue: not getting paid on time
You’ve got great relationships with your customers and clients and you know that they’re solvent – and yet they still never seem to get around to paying you on time. Small businesses in the UK can now wait on average anywhere between 72 and 90 days to get paid. That’s a long time with no cash coming in if you’re already sailing quite close to the wind. Invoices not paid on time are one of the most common causes of cash flow issues that can lead to serious problems – even the collapse of the business.
Issue: no sales
Anyone with any faith at all in their business doesn’t expect to run into this particular issue. However, although you might have a great business idea with a product that is a game changer, that alone won’t help you to steer clear of a sales black hole. Many factors come into play here, from the strength of your marketing, through to your ability to retain repeat custom. Make sure you have a well defined plan for driving sales – other than just relying on the value of what you’re selling – to ensure your businesses doesn’t fall into this particular trap.
Issue: no back up
Small businesses don’t usually have much back up and this can be crippling when it comes to cash flow issues. You may need just a temporary injection of cash to get past a new stock delivery or rent payment dates but without some kind of backup that gap in cash flow can be devastating. Overdrafts and loans, as well as creating a cash buffer for your business, will all help to overcome this particular obstacle.
Issue: poor response times
Cash flow is constantly moving and changing and requires ongoing attention and management. If you’re not on top of the books, you don’t have any cash flow forecasts and you haven’t worked out how to handle the numbers you won’t be able to react in time to avert potential cash flow issues before they get out of hand.