4 signs you might have a cash flow issue
Cash is, as they say, king, and so the flow of the green stuff through a business is a solid reflection of its strength and stability. Whether you’re profitable at the end of the month, or have comfortable cash reserves, a cash flow issue can still arise seemingly out of nowhere, chewing away your reserves and throwing your business into a tailspin. Do you ever feel like there's "not enough money" to go around? Then you might be experiencing a cash flow problem that requires immediate attention.
Here are a few other red flags to watch out for:
1. You miss payments
Do you find unpaid invoices scattered on your desk? Missed or late tax payments? You might be relegating these as common "business owner problems," but it could be something else.
The inability to pay your contractors, employees, and suppliers on time is stressful and scary, and also a good sign of a cash flow problem.
2. You rely on discounts to improve sales
Seasonal discounts such as Black Friday sales can enhance your revenue. But do you find yourself lowering prices because you are not meeting your sales goals?
This tactic can backfire in many ways, including the loss of profit and the inability to satisfy quantity demand.
3. You have insufficient financial records or forecasts
If you're not sure about the economic landscape of the next three months, then it's time to revisit the stability of your cash flow.
Take a look at your profit and loss statements. Organize your records of receivables and payables, so you can avoid penalties and maximize the amount of cash on hand. While disorganization isn’t necessarily a sign that you will have a cash flow issue, it can definitely contribute to the problem, increasing the likelihood of a sudden expense that you’re not prepared for.
4. You don’t have clear goals for breaking even
What are your sales goals? Do you know how much money you need to make to pay for operational costs? A cash crunch can arise out of a simple lack of planning. Perhaps you set your prices too low to cover all of your operational cost? Maybe you’re spending too much on non-essential items. Without planning ahead, you’ll never be able to see where the cash flow issues are stemming from.
By getting your records organized, reflecting on your financial goals, and forming a management strategy, you can prevent cash flow problems so you can focus on running and improving your business.
With the right guidance and advice, you can take this big step and transform the future of your business. If you'd like to learn more about business finance, and how to read financial statements and gain key insights from them, download our free eBook "Business Finance is Hard...but it doesn't have to be."