5 Main Causes of Small Business Cash Flow Problems
Cash Flow Problems
Cash flow problems can happen in any business, big or small, and is often one of the main causes for the failure of a business. Knowing what to look out for should help your business to keep your cash flow in the green. So, what are the main causes small business cash flow problems?
Small business cash flow problems may be caused by seasonal highs and lows, but without the proper planning to tide you through the lows, having enough cash flow can be a problem. For example, a coat shop will be busier during the colder seasons and have less footfall during the warmer months. That coat shop must have a plan in place or have a certain amount of cash set aside for the slower months.
Too Much Stock
Buying in bulk is a great idea to avail of discounts, but what if the stock doesn’t sell? If this happens, you end up having items gathering dust and tying up your hard-earned cash. Avoid this by having good stock management. This may include asking customer’s opinions of potential new stock or buying a few samples from the supplier to see how they perform in your business. If you have stock that isn’t selling, maybe consider discounting it to prevent any small business cash flow problems.
Poor Financial Planning
Failure to forecast, plan and budget in a small business often means that cash flow problems can occur when they could have been avoided. Obviously, you can’t predict the future, but having cash set aside for an emergency can be a real benefit to your business. Having a financial plan and budget can also help you spot potential cash flow problems within your small business.
When a customer misses a payment deadline it can put significant strain on your small business’s cash flow. Without money coming in on time you may not be able to meet your own commitments such as paying suppliers or employees. If you know in advance of a late payment, you should adjust your small business’s cash flow forecast to include this so there isn’t a problem with your cash flow in the future.
If your utility bills and rent are costing you a bomb, it may be time to reconsider them. You could find a cheaper electricity supplier or try to renegotiate your rent with your landlord. Don’t allow yourself to fall behind on payments, or use most of your cash flow on high overheads as this will cause a problem with your businesses cash flow.
What Can You Do?
Having a positive cash flow is essential for any business no matter the size. This doesn’t happen overnight or by itself. Consider the main causes of small business cash flow problems outlined here and see if any can be applied to your business. Download our free cash flow template that should help you keep on top of any future cash flow problems in your small business.