How To Identify Potential Cashflow Problems

On the face of it, identifying a cashflow problem is not that complex. After all, you will soon realise you have an issue when you are no longer able to pay your bills! The trick, of course, is to identify a cashflow problem whilst it is still only a potential difficulty.

Monitor Your Financial Status

The biggest reason that cashflow issues are not caught early and become seriously problematic is that too many businesses do not use adequate business forecasting techniques. Specifically, most small businesses rely solely on a traditional budget, and ignore the equally crucial cashflow forecast. You should start by putting your historical accounts into order. Look at the last few years of operation, and put together a cashflow history for major expenses and revenues. This will enable you to see where the issues may be occurring, but is only the foundation for putting together a comprehensive cashflow forecast for future years. Make sure that you know where your money is leaving the business, and exactly when. Similarly, make sure that you know not only when your income is theoretically due to arrive, but when clients are paying you in reality.

Consult Your Colleagues

A comprehensive cashflow forecast, along with a regularly updated budget, should soon enable you to see which areas of the business are costing you money, and in which areas your income could be increased or phased differently. At this point, avoid the temptation to change things immediately. Altering one part of your business may unintentionally change other aspects of your commercial operation, and you need to check that you will not be causing more problems than you solve. For this reason, you should talk to any employees who deal with the area concerned, and ask them to explain why the cashflow issue exists. Work with them to design a better way of doing things, and then consult your repeat customers. Loyal clients are a business’ lifeblood, and you do not want to do anything to inconvenience them. What is more, asking their opinion and looking for feedback makes you stand out as a company which cares about customer service.

Take Action

If your customers and colleagues agree that a change to your processes is all that is required to solve the cashflow issue, then by all means, take action. However, if you cannot find a simple method for rephasing your income or delaying your expenditure, you may need to look at methods for increasing your business’ reserves. Your first stop should be a traditional bank loan, but these are increasingly difficult to secure in the current economic climate. You may wish to investigate more innovative methods of boosting your cashflow, such as asset finance or factoring. The former allows you to release funds from assets your business already owns, whilst the latter enables you to receive a lump sum payment in return for the rights to your invoice book. Either may enable you to survive short-term cashflow issues, whilst you straighten your business out!

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.

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