Cash-flow problems can seriously impact a business’s ability to operate: without the liquidity necessary to pay staff and to purchase stock, there’s no way of securing cash from clients, and what follows is a vicious cycle. You can think of cash as like the oil that lubricates the engine of your business, without which things can quickly grind to halt.
The arrival of Covid-19 has created cash-flow problems for businesses across the country, and exacerbated already-existing problems with liquidity. To tackle the issue, we might look at the factors which contribute to cash flow, and how they might be mitigated against. Then we might look at the more direct solutions to the problem. After all, there’s no point in administering a fix if there are deeper systemic issues which will make cash-flow problems more likely.
What causes cash flow problems?
Cash-flow problems are among the most common symptoms of growing pains. When a business expands too quickly, they eat into their available funds. For example, if a business is enjoying healthy profits at one site, then they might decide to expand into another before they’ve built up a healthy pile of cash.
In the case of overexpansion, the business might be guilty of buying the right things at the wrong time. But it’s also possible to buy the wrong things entirely. If you don’t have a plan in place for what you need to spend money on at the right time, then you might be lead into frivolous purchases which don’t justify their cost.
Carrying too much inventory will place a drain on your available cash, as well as eating up valuable warehouse space. This is a problem which can be addressed through proper inventory management. This may involve investment in specialised computer hardware or software, but this is a cost that may justify itself in the long-term.
If your customers are slow to pay, then your cash reserves will be affected. Putting a procedure in place to deal with non-paying clients will allow you to pressure them into paying, often before further action is necessary. In some cases, it might be necessary to sell the debt to an outside collection agency; warn your clients of this likelihood in advance, and make sure you stay on the right side of the law.
In every case, an injection of cash-flow finance can help your business to tread water long enough secure the liquidity it really needs.