5 Hidden Signs Of Cash-flow Problems In Your Business
New start-ups and business owners are likely to come across difficult situations impacting business finance during the initial years. According to CB Insights, a data analytics company providing market intelligence, 29% of small businesses fail because they run out of cash. In all likeliness, they overlook hidden signs; one needs to develop deeper to find the root cause. Since many entrepreneurs or business owners don’t possess prior experience, they should watch out for the following signs.
1. Delayed collection of money from customers
Not managing funds inflow can be a grave mistake. Funds are crucial for the efficient running of the business. Vendors & suppliers need to be paid on time. This cannot be managed unless customers pay on time.
2. Lack of liquidity despite growing sales
Growth is vital for the success of a business, just as managing funds well is critical for profitability. There are many instances where the company is able to garner an enormous sale but fails timely collection of revenue.
3. Frequently missing deadlines in paying taxes & suppliers.
Failure in timely payment might hamper the raw material supplies & affect production which can lead to a loss in sales. Not paying taxes on time can lead to hefty fines and penalties. Both these undesirable situations can have dire consequences.
4. Not paying yourself consistently to accommodate business expenses
Partners, proprietors, or directors require funds to bear personal expenses. Inadequate fund to pay the promoters is not a good sign of the financial health of a business.
5. Incapability of the business to finance its growth independently
Growth in business requires investment. Surplus working capital for thriving sales, credit, and additional raw material purchases is a norm. Financing the installation of extra machinery or storage facilities requires significant investment. Not being able to manage these can lead to crippling sales.
All the above situations arise because a business fails in any or all of the following elements of the cash flow management system
Elements of Cash Flow Systems
- Collection process
- Payment process
- Accounting process
- Financial reporting process
- Budgeting & forecasting process
- Review and feedback process
Managing business finance is imperative, & failing to do so might lead to the failure of a business. As per global surveys, 61% of SMEs struggle with cash flow. Hiring professionals to assist finances can be a good alternative.
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