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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.

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What might cause a cash flow problem?

Failure of a customer to pay their invoices on time or worse still, a bad debt
Offering too much credit to customers
Loss of a key customer or source of revenue
Seasonal fluctuations in sales
High overheads
Poor credit controls
Financial management – e.g., over-investing when profits and subsequent cash flows do not justify Stockpiling
Failure to forecast cash flow effectively or at all
Difficulty in anticipating changes in business conditions and taking appropriate action

How do you solve cashflow problems?

It is entirely possible to resolve cashflow problems by taking early and robust action such as:

Develop short, medium, and long term cashflow forecasts.

Consider all your income and outgoings and consider were improvements and savings.

Stage payments for your goods or services, so you get some money up front to cover some of your costs to supply.

Invoice finance and other finance facilities can provide you with quick access to cash.

Sometimes it is better not to have customers that cause you to incur expenditure, but then do not pay you.

Seek advice from a business restructuring specialist

No matter what type of business you operate, having a strong business adviser to support and guide you through the process is extremely beneficial for a positive outcome. Our team at Quantuma-Direct care about our clients and have the experience and skills to formulate business strategies that drive success.