You’ve started your business, and everything seems to be going well. Customers are pouring in, your pockets are being lined with cash, and the demand for your offerings are continuously rising. After gathering a considerable amount of profits, you’ve invested cash back into your business to stimulate growth. But then, for some reason, the sales start to run low, you’re strapped for cash, and you’re struggling to pay your operational costs. Long story short—you’re in a cash flow crunch.
Cash flow issues are usually preceded by noticeable warning signs, which means that they don’t and should not surprise you. If you’ve already started experiencing cash flow problems, it’s too late to do anything to prevent them now. But even if cash flow is the least of your worries at present, you should be aware of the warning signs of an impending cash flow problem—in this way, you can turn things around before they get ugly.
Here are the warning signs of a cash flow problem coming your way—and what you can do to avoid it:
1. Not enough sales
You don’t have to pay for the cost of your products or services if no one is buying them. But you still have to pay for rent, utilities, employees, and other operating costs. And if you’re not generating enough sales, you could be looking at a future where you’re struggling to pay your operating costs.
Before that happens, find ways on how to generate more sales. You can achieve this by offering add-on purchases to your main products, coming up with irresistible offers, and ramping up your lead generation efforts, among other strategies. Stop waiting for customers to walk through your door—start finding them where they are and be more aggressive.
2. Waiting for large payments
When you’re relying on large payments to pay for operating expenses, you’re already facing an impending cash flow problem. However, remember that clients have their own expenses to worry about. And if they don’t pay on time or worse—don’t pay at all—you could be left with a disastrous problem in your hands.
To avoid having to rely on big payments to pay next month’s bills, build a good cash reserve for your enterprise. In this way, you have the cash to pay your operating expenses regardless if your clients pay on time or not.
3. Discrepancies in financial records
If you start noticing discrepancies in any of your financial records, whether big or small, you should start re-checking everything to ensure you’re in the right place financially. Otherwise, you could be operating under the impression that you hold enough cash when in reality, you’re already running low and about to face a cash flow crash.
Invest in financial tools or services like payroll management services, especially if you are your own accountant. Doing so will help you get an accurate view of your finances, which, in turn, will help prevent problems in cash flow in the future.
4. Slow-paying customers
Slow-paying customers are the bane of many business owners since they can easily cause cash flow problems. Unfortunately, delayed payments have become somewhat of a standard in many industries, and you shouldn’t expect all of your customers to pay promptly. That said, you should be prepared for cash flow problems that delayed payments can cause if you want to continue providing goods and services to your customers.
Again, establishing a cash reserve is the best way to shield yourself from cash flow problems due to delayed payments. You can also provide incentives for early payments by giving something small in return, such as a discount or a free add-on.
5. Having too much debt
Having too much debt brings nothing good for any business. If you are juggling too many small loans or lines of credit, you will likely face cash flow problems in the future. That is if you don’t know how to use short-term debt properly and if your credit line is not even large enough to cover your cash flow problems.
When you start to struggle with debt payments, it’s time to look for options. You can consider consolidating your debt to make it easier to repay them, or you can also look into refinancing. Either way, you should act quickly since debt can easily pile up and bury you underneath unpaid bills.
When you start noticing these signs in your business, it’s time to start correcting the cause of your impending cash flow crunch. Early intervention is the key to minimizing your financial problems in both the short and long-term. And if you successfully anticipate cash flow issues before they happen, the more stable your business will be.