The 5 common cash flow mistakes you’re probably making
23/01/2018 / Comments 0
All good business owners know that cash is king. Maintain a healthy cash flow and you’re in the best position to take advantage of new opportunities and succeed in business. Fail to keep it flowing and you’ll soon find yourself on a rocky path.
With business costs rising and widespread late payment continuing to put pressure on cash flows, however, it’s certainly not getting any easier for businesses to manage.
With that in mind, we look at some of the most common cash flow mistakes that business owners make. Are you guilty of any?
Spending more than you can afford is guaranteed to negatively impact your cash flow.
Whether you overspend out of recklessness or because you don’t have the time or resources to shop around, it’s vital that you discipline your spending in order to protect your cash position.
To stop yourself overspending, first you must analyse your expenditure so that you have a clear picture of your incomings and outgoings and make cutbacks where possible.
It’s important to pay particular attention to your outgoings and consider the cost-benefit of every expense.
This can help you to decide what needs to be cut and what is fundamental to your business’s success.
In the future, keep track of everything that you’d like to purchase and the potential costs involved. Then prioritise these purchases in order of which will have the greatest positive impact on your business.
This ensures that you don’t overspend on unnecessary items.
Also, benchmarking your existing suppliers could reveal areas where you can make savings.
But, remember that whilst getting a cheaper deal could improve your cash flow, it’s important not to sacrifice quality as this could have a negative impact on your business.
Here are 5 key areas to look at to save your business money. Could you make any savings?
Discover 5 key areas to save your business money
2. Growing too fast
Growing your business may sound like something that should be celebrated, but without the right infrastructure in place, taking on too many orders too quickly can be more damaging to your cash flow than not taking any on at all.
Fortunately, there are various funding options available which are designed to boost your cash flow and support your business as it grows.
For example, invoice finance is tailor-made for growing businesses and can help overcome the payment delays associated with trading on credit.
By releasing up to 90% of an invoice’s value within just 24 hours of its issue, it bridges the cash flow gap between providing a service and getting paid.
This ensures that a healthy cash flow is maintained and that all suppliers can be paid without delay.
Also, its flexible nature means that the amount businesses can access grows in line with turnover. So, the more invoices you raise, the more funding you will receive.
Take a look at these 10 ways you can fund your business growth without a bank loan for some more financing ideas for growing businesses.
10 ways to fund your business
3. Purchasing too much stock
Whilst buying in bulk is beneficial in many ways, if you purchase more stock than you need to it could end up gathering dust in a warehouse and tying up your cash.
Good stock management ensures that you never hold stock for longer than necessary.
To achieve this you should implement a good stock management system, monitor inventory levels carefully, discipline your spending habits and always clear discontinued or obsolete stock.
Going forward it’s important to consider the pros and cons of buying in bulk. Do the savings outweigh the costs of storage? And are your products losing value?
Depending on the nature of your business, it could be beneficial adopting a ‘Just-In-Time’ buying policy to help manage cash flow.
You could also use your stock to boost your cash flow through asset based lending.
As well as unlocking funding against the value of unpaid invoices, facilities can additionally enable businesses to release working capital against raw materials, work in progress or finished goods – along with a range of other company assets.
4. Waiting too long for payment
Bacs Payment Schemes estimates that SMEs are currently owed £14.2 billion in late payments. That’s a lot of money tied up in overdue invoices, and the impact this has on cash flow can be significant.
Without money coming in on time you may not be able to meet your own commitments such as paying suppliers or employees.
When trading on credit terms is impacting your cash flow there are two important things to consider: getting back the money you’re owed and maintaining a healthy cash flow until that happens.
Firstly, improving your credit control processes can help prevent late payments and ensure that you have the right procedures in place to tackle it when it happens.
There are a number of credit management techniques you can try to encourage your customers to pay on time.
Unfortunately, not all businesses have the time or resource to dedicate to effective credit control.
If this is the case for your business you could outsource the task to the experts who will use their extensive experience to deliver the best results for your business.
Alternatively, finance options are available which help businesses to overcome the cash flow challenges posed by trading on credit terms.
Factoring, for example, combines the cash flow benefit of releasing up to 90% of an invoice’s value with a dedicated sales ledger management service, leaving you the time and resource to meet your day-to-day cash flow commitments without worrying about your money coming in on time.
5. Poor financial planning
Failure to forecast, plan and budget effectively often means that cash flow shortages occur when they could have been avoided.
Cash flow obstacles are a common occurrence in business. Whether it’s an unexpected bill, a late payment or a slow sales month, there are a number of cash flow issues that could pop up unexpectedly.
But, with effective financial planning, you can safeguard your business from these potential obstacles.
Good cash flow forecasting will allow you to spot cash flow shortages before they occur so that you can take the necessary steps to improve your financial position before it becomes an issue.
It could even help you to identify if additional funding is required and help you to secure it.
As a commercial finance broker we can introduce the most suitable finance facility for your cash flow needs. Contact us today on 0800 9774833 or request a call back to see how we could help your business.
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