One of the most important gauges of your financial health is cashflow – it’s what fuels your business. Just like the flow of blood in your body, when there are blockages, it could be fatal.

If you’ve ever wondered, “How come I’ve made a profit but I don’t have any cash?” it’s time to look more closely at the causes.  Knowing what these are can help you develop effective cashflow management and maintain a healthy business.

The are:  

1. Low profits, decline in revenue 

A cashflow problem occurs when money coming in is declining but outgoings are still payable (eg. rent payments, staff wages, stock etc).

2. Unexpected or rapid growth 

How could this be? Isn’t this a good thing? It is, but not if you are taking on new customers while waiting for the existing customers to pay.

3. Buying too much stock 

When this occurs there are two issues - it ties up cash, because you are not making up for costs, and there is a risk you won’t sell it all.

4. Too much customer credit & slow paying debtors

It’s a domino effect - while you are waiting to be paid you still have to pay your suppliers. As a general rule, 70% of your debtors should be paying in 30 days.  The solution may be to offer a discount if a customer pays faster than the standard 30 days.

5. Overtrading 

Over extending yourself and taking on more work than you have capacity to fulfil.

6. Increase in expenses 

You may not have the extra cash on hand to cover costs when changes in expenses happen, eg. hiring an extra employee, or paying for damages due to uninsured costs.

Act now to avoid becoming another cashflow fatality contact us and get your business back on track.