Cash Flow Crisis: The Waring Signals You Can't Avoid

Cash flow can be the difference between success and failure for your small business.  In many cases, poor cash-flow management is one of the main reasons small businesses fail.  With that being said, it’s important to recognize when your business is about to face a cash flow crisis. Many entrepreneurs aren’t finance and accounting experts, so it is essential to hire a local CPA or outsourced accounting services to help you navigate your cash flow management.

We advise you keep an eye on your cash flow, and look out for the following warning signs that could signify problems: Although your small business will not face every single problem, even one can be disastrous on your business.

1. Slow Paying Debtors

Obtaining new customers can be difficult in the early stages of a startup, and the last thing you want to do is lose any customers. It can be very exciting when your marketing is working but can be very dangerous for your company if these customers are slow payers. It can be awkward asking customers to pay an invoice but may be necessary to ensure the survival of your business.

Some business owners fear to upset their customers by chasing their accounts receivable. We urge small business owners to not fear this because it is a fact of business life and an extremely necessary conversation to have if your customers if they can’t seem to pay their bills on time.

A solution that may sound obvious to but is often overlooked is making sure your payment terms are listed on their invoices. If you don’t clearly specify payment terms right on the invoice or at least in a contract, you are inviting trouble to your small business. We advise you to monitor your accounts receivable regularly, and mail or email monthly or weekly statements to your customer.  Additionally, speed up cash flow by sending out invoices as soon as you ship products or complete a job.

If you do have a slow-paying customer, it is essential to identify the problem early in the relationship since extending their credit with you is a recipe for a cash flow disaster. If you need assistance on setting up payment terms, outsourced accounting services or a local CPA can assist your small business.

2. Insufficient Sales

Generating sales is essential to successful cash flow and a successful future. Try and find some easy add on sales (would you like a drink with that?) or ‘low hanging fruit’ from your existing customers. Develop an irresistible offer for your existing customers and make sure you build a list of customers to target with your offers.

Statistics show that 80% of sales are made after the fifth contact with a potential customer so make sure you also keep building a list of prospects via your website by exchanging a piece of your valuable content (or even a product sample) for the prospect’s name and email address. You may have to give away an e-book, whitepaper, newsletter or checklist but this strategy lets you build a pipeline of prospects that you have permission to market to in the future. It is important to remember that not everyone who lands on your website is ready to buy so building a list and adding them to future marketing campaigns is a key strategy to winning more sales.

It is essential to develop a sales forecast. If you do not feel like you have the knowledge to do this, it is important to contact your local CPA or hire outsourced accounting services to do so. They say, if you don’t know where you are going, all roads lead to nowhere. Establish sales targets so you can monitor your own performance. It could mean identifying how many new customers you need to win each week or month. In business, if you don’t measure you can’t manage.

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3. Excessive Short-Term Debt

A business with too much debt will inevitably experience cash flow issues. If you are having trouble servicing your loans and credit cards then red lights should be flashing. It could be time to look at all your loans and consolidate them or refinance.

Being prudent in short-term finance options can help you when you need cash. On the flip side, if used the wrong way, it could quickly become a problem. Your business can easily get caught up in paying fees and incurring debt that you cannot handle. Hire a local CPA or turn to outsourced accounting services that can look at your operations and properly advise you is the first step in protecting your business and getting things under control.

If your business is experiencing cash flow issues or you anticipate the need for extra finance, we urge you to talk to us today.

4.  Wrong Pricing or Discounts

Small business owners often offer discounts to try and win over customers. This strategy of reducing prices to win a bigger share of the market by luring customers away from your competitors is sound but could have an impact on your cash flow.

You need to review your pricing at regular intervals because your suppliers have probably increased their prices so the cost of your product ‘inputs’ is on the rise. What impact are those costs having on your profit margins? It’s no surprise to find that businesses that don’t regularly review their pricing and gross profit margins often experience cash flow problems. Outsourced accounting services can regularly review your margins to ensure your pricing strategy will have a positive impact on cash flow.

5. You Aren’t Even Forecasting Cash Flow

Small business owners are often pulled in a million different directions in the initial stages. One thing you certainly cannot operate without is forecasts. Forecasting is both an urgent and important task, which means that forecasting your cash flow is high-priority. It results in the biggest return on your time and money investment. Forecasting allows you to solve small problems before they become costly business crises. Forecasting will literally save your business at some point all because you make the time once or twice a week to have a coffee date with your numbers.

Your team can easily set SMART financial goals that move you in measurable ways toward risk reduction and business health. It is important to examine all your business processes and plug where the money is leaking out. This can help you asses your cash flow management and ensure there are no problems ahead.

Many small business owners do not feel like they have the financial expertise to create forecasting and generate accurate goals. This is perfectly OK. A local CPA or outsourced accounting services can help small business owners generate accurate data in real time that will help the business owners make better decisions. Accurate forecasts will help your small business gain direction. This way your decisions will be proactive opposed to reactive which could save your business in the long term.

Final Thoughts

Go through your operational revenues to identify any disbursements, when revenues can be collected and develop a workable forecast to determine future cash streams. As your conditions change, this will help to maintain a realistic idea of where you are.

It’s so obvious that it almost goes without saying, but you know your data is only leverageable if its up-to-date – which means you access it regularly – which means that you made time in your weekly schedule along with other critical tasks. With today’s cloud tools and connected systems, keeping on top of everything gets easier every year.

Limitless Investment and Capital’s Outsourced Accounting Services

In order to stay focused on building your business, companies need solid financial management with a dependable accounting function. Limitless Investment & Capital combines a team of experts, systematized processes and procedures, and the latest in accounting technology to ensure our clients receive the best service to support their unique business needs at an affordable rate. We don’t just handle your business accounting needs, we get it done right! Get in touch with our team TODAY!