Why your business has poor cashflow

July 18th, 2019     Improve Your Business

Building the business you need to have the life you want means that you will need a business with a healthy cashflow position – money in the bank, money to pay what the business owes and for you to live your life.

So here are six of the top reasons we’ve found why businesses have poor cashflow:

1. You’re not making enough profit – Although profits don’t always mean cash, if you’re not making enough of a profit in the first place or even making losses, it stands to reason that cashflow is going to be a problem. There can be many reasons for this, not enough sales, poor pricing decisions, costs are too high, and so it helps to be looking at your numbers regularly so that you know what’s going on before it’s too late.

2. Taking too long to send out invoices – If you haven’t been quick in sending out your invoices for work done, but have paid your suppliers, subcontractors or employees, then not only will you have the delay that you’ve built in yourself, but you’ll also have to wait for the customer to pay on top of that. This is sometimes called ‘lock up’ and is something you want to avoid, so be prompt in sending invoices out! We’ve known businesses wait months after completing work before sending out an invoice (as well as forgetting to send an invoice at all!), which decimates cashflow.

3. Poor systems of financial control – Poor financial systems may mean you’re not able to easily keep track of what you are owed and by whom. This means people who owe you money can’t be chased very easily and we have seen in some cases being forgotten about altogether, which may eventually lead to bad debts.

4. Waiting until the whole job is done – If you wait to finish a job to get paid you may have significant cash flow problems especially if you’re going to be undertaking a large amount of work over a period of time. So get your customer to agree to stage payments based on completion mileposts and have these as part of your terms of business.

5. Poor credit control – Along with point 3, even if you have good systems, you need to do the work to keep on top of amounts owed from customers. Even before you start work for a customer, if giving them credit, you should know who you are doing business with and assess the risk of non payment, as well as making very clear your terms of business making sure these are written in a way that gives you as much protection as possible.

6. Lack of forecasting – Changes in your business whether it be growth, seasonal movements, upcoming capital expenditure or making provision for uncertainty will all affect cashflow and planning ahead will identify problems in time, hopefully, for you to take action. Forecasting as well as identifying the problems should help you match the right type of finance to meet your needs to minimise cashflow issues, like using long term finance (lease /hire purchase) for capital assets instead of cash/overdraft that you’ll need for the day to day running of your business.

We work with business owners to build the businesses they need to have the life they want and that includes helping improve cashflow, so if this is a concern of yours, get in touch with me on 01803 296678 or email andrew.price@andrewprice.co.uk