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5 Common Cash Flow Problems and How To Avoid Them

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Written By Adeyemi Adetilewa

When it comes to managing your finances, you might be used to seeking third-party assistance, especially when faced with an emergency. In these situations, you may look at taking out one of the best payday loans or perhaps extending your overdraft.

However, when you run a business, there are a lot of different things you need to consider, and these might not be an option for you. Cash flow is also super important when it comes to the finances of your business, and it is easy to run into problems with it.

In this article, you will learn about the most common cash flow issues and how you can avoid them.

Bad Stock Management

1. Bad Stock Management

You might think it is a great idea to bulk buy loads of stock, but when you are left with it piled up in the backroom and not being sold, you’ll soon realise that you’ve wasted a load of your cash on it.

To have a positive cash flow, you need to ensure that you aren’t wasting money, so you need to be on top of what stock you actually need. Doing regular stock takes will make ordering so much easier, and you’ll find that you don’t spend as much in the long run.

Not everything will sell at the same rate, meaning you don’t need to have the same amount of each item. Having more of your top sellers is crucial, but don’t overload your stockroom with things you don’t need. 

2. No Forecast

Having a business forecast is vital if you want to maintain a healthy cash flow. You need to anticipate exactly what your cash flow is going to look like at any given time, otherwise, you could end up spending way more than you are bringing in.

Being able to recover from these periods of time is essential for your survival, so you want to be aware of them before they actually happen. Make sure you regularly update it as well because things can change rapidly in business.

You don’t want to assume you’ll be super busy, only to find out you are quieter than usual. This will then help you when forecasting next year, making it more accurate and allowing you to manage your cash flow much better.

Not Using A Budget

3. Not Using A Budget

A budget doesn’t have to be a negative thing. In fact, having a spending plan can be a fantastic addition to your business.

If you don’t have a budget, it is extremely easy to spend more than you should and put your cash flow in the red. Having a clear idea of how much money you can spend is going to give you a much better handle on your cash flow and keep it above water much longer.

So, if you don’t have a budget or aren’t utilising the one you have, make sure you implement it as soon as possible. Your cash flow will soon start to benefit from it. 

4. Trying To Grow Too Soon

Although you might think growth is the end goal when it comes to your business, trying to grow too quickly can actually be detrimental to your cash flow. The more you grow, the more overheads you are going to have to cover.

For instance, you’ll need to pay more staff, perhaps pay more rent on larger premises, or simply have to buy more stock that you can’t afford. If your cash flow isn’t looking good, then growth should be the last thing you are worried about. You may think that growth equals positive cash flow, but it can actually be the other way around.

With a negative cash flow, you won’t be able to see the growth you’d like, and you’ll end up in a way worse position. So, while growth can be good and exciting, don’t jump into it if you haven’t got the cash behind you to back it up. 

5. Forgoing An Emergency Fund

Every business needs to have an emergency fund behind them. Without it, you’ll soon find that when you are in most need of funding, you can’t scramble any together.

Something as simple as fixing an error with your website might not be able to be covered by your cash flow if you don’t have enough of it, so having some savings in a separate account can get it sorted for you.

If you end up using all of your cash flow to fix every little problem you have, you’ll soon find that it is completely depleted. You’ll then struggle to fill it back up and you’ll start to notice the negative effects it has on your business overall. So, make sure you have a good security blanket around you and start an emergency fund.

Common cash flow problems and solutions

Common cash flow problems and solutions

Cash flow is very important to any business, and you need to manage it effectively in order to be successful. You shouldn’t spend too much of it, nor should you drain it consistently each month.

Here are some common cash flow problems and solutions for businesses:

  • Bad stock management.
  • No forecast.
  • Not using a budget.
  • Trying to grow too soon.
  • Forgoing an emergency fund.

If you want to have a positive cash flow, you need to ensure that you manage all the other financial aspects of your business well too. Without a strong forecast and budget, you’ll find it impossible to keep your cash flow up, so spend some time getting these together before attempting to grow your business.

Once you get a good grip on your cash flow, your business will soon start to see the benefits and be on the right path to success.

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