The phrase “cash flow” refers to the total amount of money that enters and exits your company over a certain time period. From a financial point of view, this is the end of both accounts receivable and accounts payable.
The flow of cash is a crucial factor in the success of small enterprises. Your company will need you to do at least some of the most fundamental accounting tasks, regardless of whether or not you believe yourself to be a “money person.” You need to keep a close watch on your cash flow if you want to be successful as an entrepreneur. If you don’t, you run the risk of getting into circumstances in which your business doesn’t have enough money to keep running.
To get started, it is important to evaluate some of the most frequent cash flow challenges that small and medium-sized businesses face. Below are some common cash flow problems.
- Late or partial payments. When it comes to cash flow issues, outstanding payments are one of the most significant obstacles, especially for small and medium-sized businesses encounter. According to the findings of one research, 54% of outstanding bills are paid late. This is a real cash flow problem, since you’ve already done the work but haven’t been paid for it. You will not only lose the profit from the task, but you will also lose the money that the job costs you to accomplish.
- Not enough cash reserves on hand. A cash reserve may be thought of as something similar to a financial safety net for your company. You may calculate how much cash reserve your company needs by dividing the total cash on hand by the total cash outflows. This will inform you of the number of days that your cash on hand will be able to make up for the lack of cash flow that is coming in from other sources.
- Excessive overhead expenses. In the context of your company, “overheads” refer to any recurring costs that aren’t directly associated with the manufacturing and sale of your goods. The cost of your rent, Internet service, and other utility bills are typical examples. Even while these expenses are necessary in order to keep your company’s doors open, they may be detrimental to your company’s cash flow, particularly if they begin to spiral out of control. When your overhead costs reach a certain threshold, it may become challenging for you to make payments on time, and in the long term, you may find that you run out of money altogether.
- Overstocking. There is one area that you need to investigate right away if money is tight, and that area is your inventory. If you find yourself in a situation with negative cash flow and money is tight, you should check into this area. An excessive amount of inventory, also known as overstocking, may have an effect on the flow of money into and out of your company. When you keep an excessive quantity of your raw materials or finished goods in stock, it may tie up considerable sums of money and occupy expensive warehouse space. Worse still, items that have been sitting on your shelves for an excessive amount of time run the danger of becoming obsolete and unsalable, which will result in decreased profits for your business.
- Poor or no financial planning. If you don’t do a proper cash flow forecast and don’t plan your budget beforehand, you increase the likelihood of experiencing cash shortages and put yourself in a position where you might find yourself in significant financial problems. It doesn’t matter if you come up with a fantastic financial strategy and an almost precise prediction; if you pursue a business model that results in negative cash flow, you’re going to get yourself into a lot of problems sooner or later.
How to fix cash flow issues?
Increasing your cash flow as well as your profit margins may be accomplished very effectively with the assistance of virtual CFO services. They assist businesses in regaining control of their financial situations and coming to choices that are in the organization’s overall best interest. A virtual chief financial officer may be obtained via outsourcing at a fraction of the expense of paying someone to work domestically.
What is BashoffCFO?
BashoffCFO is a group of High-Impact CFOs, Business Advisors, and Cash Flow Specialists, who focus on accelerating your cash flow and generating profitable growth. We work to rapidly increase your profitability, radically improve operational efficiency, and help you achieve exponential growth.
Discover how BashoffCFO may help you succeed faster! Visit www.bashoffcfo.com or call 410-952-6767