Cash Flow Problems? Don’t bury your head in the sand!

Have you been in a situation where you didn’t have enough cash coming in to pay all of your bills? What did you do?  Did you call the people you owed to tell them about your situation and work out a plan with them? Or, did you become an Ostrich and stick your head in the sand hoping your problems would disappear?

If you were up front and talked to the people you owed, congratulations! The process may have been uncomfortable but you dealt with it honestly and were upfront.  Good for you!

However, did you try to ignore the obvious problem and hope it would somehow resolve itself? How did that go? If you have debt (credit cards, loan payments, suppliers that you owe, etc.) then by not dealing with it you have most likely caused yourself additional problems and more expense:

  • Late fees
  • Additional interest charges
  • Perhaps a decreased credit rating
  • You may damage your relationships with the suppliers and creditors making it harder for you to do business with them in the future

So, even if it’s uncomfortable to deal with a lack of cash, you have to be honest with yourself:

  • This is a problem that will not go away
  • This is an opportunity to gain a better understanding about why there is a lack of cash in your business
  • Ask yourself, is your business sustainable as it’s been operating? What has to change in order for it to generate adequate cash to consistently pay all expenses and pay yourself?

Some reasons you may have cash flow problem:

  • Low profits or losses due to lack of sales volume, inadequate pricing to cover costs, or operating expenses that are out of line with sales volume
  • Unexpected expenses (repairs, equipment malfunctions, etc.)
  • Too much inventory on-hand
  • Slow paying customers; allowing customers too much credit (A/R) and then not diligently collecting the receivables owed to you
  • Growth; growing your business can be expensive as you scale staffing, inventory, rental space to house the business, etc.
  • Seasonal demand for your product or service
  • Poor financial planning and failing to create a cash flow forecast; you are more likely to suffer from a cash shortage if you don’t have a plan to manage your cash

If you are experiencing a lack of cash flow, please feel free to reach out to our coaches and let us help you identify ways in which to make improvements to your business.