Signs of Impending Cash Flow Problems
August 22nd, 2018
While it may seem too simple of a deduction, what with the complexities surrounding small business ownership, but it rings true all the time: cash flow can make or break your business.
With such huge stakes, it is vital that as an entrepreneur you learn the early warning signs and check yourself on a regular basis. Early detection is the best way to head off disaster.
Below are three commons signs that your may be heading for cash crisis:
Slow/delayed collections process
If you are checking your books and finding that more and more clients are lapsing on payment deadlines, you are heading into dangerous territory.
Cash flow predictions are how you make spending decisions; your payment process may need to be tightened up in order to free up some cash. Get everything in writing, with clear terms from the get go.
Consider revamping your invoices for clarity and easier access to pertinent information. Consider a discount for payment upfront or in full.
Sudden or unpredicted growth
If you experience a growth spurt- an upshot in sales and higher demand than predicted, well, that’s great! But, this will likely be quickly followed by a cash crunch.
The demand for resources (supplies, inventory, manpower, etc.) can deplete your reserves faster than you can replenish them during growth.
The solution? The best option is to obtain cash, and quickly BEFORE the numbers get ahead of you. At the first signs of growth in sales, consider a small business loan- times of growth are a great application period.
You have no emergency bail out in place
Think about it- if you lost your biggest account tomorrow, could your business stay afloat? Reliance on big accounts or receivables is dangerous and without a safety net, you are asking for a cash meltdown.
You need to have a reserve set up from the get go- a small portion of profits that are saved for if and when disaster (in any form) may strike. With reserves on deck, you are prepared for the worst, and will likely survive a dip in cash flow.