Eighteen per cent of businesses suffer a cash flow crisis at least once a month, and for small businesses in particular, maintaining a healthy flow of cash throughout the business can be a challenge to say the least. It’s vital that SMEs get their finances under control, as for some, efficiently managing cash flow can be the difference between success and failure.
What causes cash flow problems?
Late or unpaid invoices can wreak havoc on a business’ cash flow, and regardless of how well the company is doing in terms of popularity or turnover, if the amount of money coming in doesn’t cover the amount needed to go out, problems may arise.
When a business doesn’t receive the money that it is owed on time, the standard of its output might suffer. Product quality can be affected and the delivery of services could grind to a halt, meaning that the business is unable to trade as effectively as desired.
While it may seem as though a surge in custom could help to get cash flowing again, sometimes it can cause the business even more problems, particularly if the company has to offer more services and wait for the financial reward. When a business doesn’t have the money to meet the demand placed upon it, a bottle-neck effect can occur.
Late or unpaid invoices aren’t the only cause of cash flow headaches. The following can also cause businesses to worry about their finances:
Thankfully, there are ways that small businesses can reduce the impact poor cash flow has on their company’s ability to trade effectively.
How can cash flow problems be resolved?
Many SMEs find the prospect of business plans quite daunting, but planning ahead doesn’t have to be as difficult as it may seem. By taking the time to craft an in-depth business plan that details objectives, predictions, and KPIs - companies can prepare for growth and progression.
Cash flow forecasting
Cash flow forecasts may sound intimidating, but in reality they can really help businesses to manage their budget effectively. Companies can make financial predictions for the year ahead based on both history and data before planning how they will spread their finances throughout the year to cater for demand.
In its most basic form, a cash flow forecast can consist of a spreadsheet that lists income and costs on a monthly basis. If you’d like to create a more detailed forecast, you could break costs down into categories for easier analysis. You may find it interesting to see how seasonal changes can impact cash flow, and by identifying when your busiest periods are you’ll be able to put plans in place to minimise the likelihood of finance issues.
To gain a better understanding of how a cash flow forecast could look, download our free cash flow forecast tool below.