It is said that more than half of new businesses fail in the first year and only a small minority last more than five years. When asked what killed them, a large number say cash flow, while poorly designed products, marketing failures and lack of market research are far less common causes. Here are 3 common cash flow issues affecting businesses.
Insufficient Income
Let’s be honest – sometimes the problem is the income and not the outgo. Cutting expenses can help reduce the gap between income and outgo but it isn’t always enough, and it won’t change a downward trend in income. A common mistake when income is down is to spend a lot on marketing to improve cash flow without the research in advance as to what works in your case. In other cases, they cut prices to generate increased sales without really improving profits because overhead expenses are unchanged. If quality is cut to reduce costs and let you lower prices, you could alienate the customers you’re asking to patronize you more.
One solution is to invest in low cost marketing solutions that work. Ask your customers to give you a positive review online and refer their friends. Offer discounts if a customer actually refers a friend, but then you don’t have to pay if it doesn’t work. Invest some time and effort into finding customers who’ve quit using your business and try to win them back.
Insufficient Attention to the Numbers
It is surprising how many businesses end up with serious cash flow problems because they don’t pay attention to it until the problem is too large to deny. This isn’t unique to businesses. Dave Ramsey cites the statistic that seven out of ten households are living paycheck to paycheck while only 55% are worried about it. This means 15% are living on the financial edge and unaware or don’t care about it until disaster hits. That a business owner may be investing effort into making customers happy, dealing with collections and trying to invent new products and services instead of sitting down and running the numbers often enough to keep a handle on them isn’t surprising.
The next question is what you should do about this problem. One option is handing off the book keeping to an expert to manage my Edmonton business cash flow. This may even save you money as they pay bills on time instead of letting late fees accumulate and following up on invoices so that you don’t borrow to meet gaps in income that increase overhead costs later. It certainly saves you money when you’re failing to identify clients that are slow to pay or far behind on payments, when you’d be better off devoting time and attention to customers who do pay you on time.
Business Policies that Kill Cash Flow
Alter your invoices so that customers have 30 days instead of 90 to pay. Refuse to sell more to someone except by cash if they have past-due balances. Have a stated policy that unpaid invoices will be sent to aggressive collectors after they are late so that you get cash in hand and customers have a reason to pay you on time. Stop giving out a lot of freebies if they aren’t generating proven sales. Put limits on generous return policies, especially if you have proof they are being abused.
All these cash flow issues can be avoided if you work with a professional and with proper counseling. If you feel like you’re always behind and can’t keep your head above water, it’s time to revise your practices and seek counsel.
