Five Signs You’re About to Face a Major Cash Flow Issue

As a business owner, you need to have a clear picture of your cash flow at all times. When you have a healthy cash flow, you’ll have the funds you need to invest in your business and grow over time. If your cash flow is negative, it could limit your ability to invest and grow. It’s important for you to have a handle on your cash flow, and to put strategies in place to manage it effectively. Cash flow management requires monitoring, managing and improving the cash flow of your business.

Here are five signs you are about to face a major cash flow issue, and what to do about each:

Your customers are paying you later and later

When you issue an invoice, are your customers paying early, on time, or late? This is something you should be tracking in your accounting system. If you start to see an increase in the time between sending the invoice and receiving payment, you need to address it.

It’s to get in front of this as soon as you notice it. Send invoices more frequently and reduce the amount of time to pay without late fees. Start charging late fee if you don’t already, and for those who take the longest to pay, require (full) payment in advance. And make arrangements to take credit card payments.

You’re using personal funds to pay for business expenses

You should never mix your business and personal finances. It’s always a bad idea, but even more so when you are doing it because your business account balance is insufficient for meeting your obligations. Don’t risk your family’s financial health for your business.

This is one reason why we always advise business owners to get a line of credit, or at least a credit card, as early as possible after starting the business. If you find you need to subsidize your business, you can use that credit to pay for business expenses, and then start looking into other ways to pay for business related expenses.

Your whole team (including you) is overworked

Have you found yourself thinking that you need a break or that maybe you need to hire more people but you just can’t afford to do that right now? Some employees will say they are overworked even when they are not, but when the entire team is feeling stretched, it’s a bad sign. Your business should run with enough cash to grow your team as needed.

When your team is always running at full capacity, productivity will decline and you could lose your most valuable team members. One of the only ways to avoid this issue is careful planning before it happens. If you need help creating an effective plan, Hundley Advisors would be honored to hear from you.

You’re putting off purchases of equipment and materials that you need

If you cannot do the work that generates your revenue, your business won’t survive. Materials and equipment purchases are not optional expenses.

If you are putting off purchases that are critical to your core business because you don’t have the cash or sufficient credit, consult with an advisor who can help you find other ways to finance the purchases.

You’re paying your bills late

Paying your bills late could damage your company’s credit rating and make it harder to get favorable credit and loan terms in the future. When you need to pay late due to cash flow issues, you have a cash flow management issue.

Review your expenses. Project your purchasing needs and make sure your customers are paying you on time. Make sur you have the appropriate internal controls in place to identify issues as and address them as they arise.

Good cash flow management is crucial to your business health and growth. It’s possible to avoid all five of these issues with a solid growth plan and strategy. Hundley Advisors works with our clients to create the plans that help them grow their businesses faster and stronger. Call us today to see how we can help your business.