Paying business costs are a common problem. Many business owners/stakeholders find the main problem for this is cash flow.
Cash flow is the measure of money being received into and out of your business. It is different from your profit and loss because it is only measuring actual money movement. For example, if you raise an invoice for a customer, it has no effect on your cash flow. What affects your cash flow is the actual invoice being paid. When cash flow is ‘good’, there is sufficient cash coming in to cover the outbound funds. Poor cash flow is when there is not enough cash to cover the payments you need to make.
Most businesses are likely to experience cash flow problems at some point, and you will not be surprised to learn that it is one of the predominant causes of business distress and failure. It is for these reasons that business owners should always try and carefully manage their business’ cash flow to ensure it is fit for purpose, and most businesses use cash flow forecasts to see ahead. Where there is likely to be a stress point, you should take immediate and proactive steps to address any cash flow problems as soon as they are recognised.