Home > Business > What does bad cash flow mean for my business?

What does bad cash flow mean for my business?

139 Views
What does bad cash flow mean for my business

Avoiding bad cashflow throughout a business’s lifespan is almost impossible. It doesn’t matter how well things are going, how big or successful you are, constantly maintaining a positive cash flow is incredibly difficult. As a start-up being in the red at some point is inevitable as you find your feet, but it shouldn’t be long before you find yourself back in credit. Sometimes bad cash flow will hit you when you least expect it, it could come from a surprise bill, losing a big client, seasonal deficiencies or you could just be unlucky with broken assets. However, if you see your business constantly suffering cash flow troubles, it typically suggests that there are bigger issues going on within the business.

So what are the typical effects cash flow troubles can have on your business?

A slowdown in growth

The majority of business owners will constantly be planning, looking forward and trying to find the next opportunity to grow. It drives owners forwards and gives people within the company to reap the rewards. But whilst there are plenty of benefits, if you grow too fast, or you’re unprepared for growth it can often set you back even further than when you started of the process. Expanding too fast can see your cash flow take a major hit.

If your cash flow isn’t in a healthy position to start with, expanding will only push you back further. Your cash flow has to be able to cover the additional expenditure of supplies, staff, marketing and potentially even moving to a bigger location. Without being in a stable position with cash flow, you’re essentially growing unsustainably.

Deterioration in supplier relationships

Often when you’re having problems with cash flow, suppliers will be the first to feel the effects. If you don’t have enough money coming into the business, it’s quite often you won’t be able to pay your suppliers. Even if payments are only slightly late, it can end up putting a big strain on the relationship, which is built on trust and reliability. If things end up turning sour with your supplier, you could end up losing all of the key raw materials you need,

Asides from using commercial finance option such as invoice finance, asset finance or bridging loans, often the best way of handling difficult situations with suppliers is by simply talking to them and discussing the options available to getting yourself out of trouble.

Employees are becoming disgruntled

If cash flow gets to a very negative point, sooner or later staff are going to feel the bite. Your workforce is what keeps the business going, they arguably the most important cog in any business, without them a business simply wouldn’t exist. If your cash flow impacts the way you pay your staff, then you have a serious problem on your hands. If staff end up being paid late it will have a massive impact on morale. Just as the success of a business depends on staff, your staff depend on the success of the business.

If you find yourself struggling to pay staff then just as with your suppliers, the best thing you can do is be honest with them, explain the situation and don’t try to trick them. By not doing so, as a director you are taking a big risk.

A serious decline in business operations

If you have serous cash flow problems, it’s likely that all of the above will come into fruition at some point. Unless handled, these kinds of issues will no doubt take your business down a path of no return and could even see its demise and closure. Some owners choose to neglect cash flow problems and look to bury their head in the sand, but this could result in serious repercussions as during the closure of any business, the actions of the directors will always be looked into. If certain action are deemed to have not been in the best interest of the company, you could see yourself being held personally liable.

Summary

Cash flow is perhaps the most common problem that business face, however, with hard work, perseverance and possible some financial aid, it’s a problem that can be solved. By efficiently planning, and strategizing how money comes in and out of your business, you will find yourself in a better position to manage cash flow.

TAGS
Do NOT follow this link or you will be banned from the site!