Cash flow is, in many senses, even more important than total profits. FastFACTR is an invoice factoring company that deal in, among other things, debt factoring. They say they normally see customers make use of their services for precisely these cash flow issues. They also say that while profits may be a good metric of how much money your business makes, cash flow is a metric of how much necessary revenue your business has – when it is needed. Low profits just mean less money but not necessarily any existential threat to a business. Poor cash flow means that a business does not have the money it needs to function day-to-day. And that is certainly the more serious problem.
You can think of cash flow as the availability of funds when they are needed. For example, if your business makes respectable profits month on month, then that’s all very well, but what about the financial obligations and payments that need to be made throughout the month? Do you have the revenue necessary for these, or is that revenue only coming at the end of the month? Do you find you have to constantly defer payments or take loans? If so, cash flow is the issue, and this is an issue that very certainly needs to be sorted sooner rather than later.
Consider Invoice Factoring
There is no denying that not having the revenue to make your financial obligations when they arise is a sure way to lose trust with those with whom you actually do business.
While noting that this is not a long-term solution, invoice factoring is an effective way to see you through such straits. Invoice factoring just requires evidence that the money is coming (that’s the invoice), and allows you get the money sooner. When the invoice is paid by your client, you can pay back the invoice factoring service plus a small fee. This works out much cheaper than loans and is the way to go when your cash flow fails.
Risks to Small Business Cash Flow
But, of course, it is better not to land in this situation in the first place. Half the battle where this is concerned – and especially for small businesses – is to understand the risks to your cash flow which are either constantly there or can arise at a moment’s notice. Here follows some of those risks:
In the worst situations, sales might be instantly impacted. However, trends can normally be observed which indicate that sales are going in the wrong direction. Shortly afterwards, cash flow problems are bound to arise. So, keep detailed records and make forecasts; you will soon have a very good idea of the way things are headed.
Poor Cost Control
Just as sales may go down, so too can expenditure go up. If you run a business, then you should have a detailed budget, which will allow you to compare actual and budgeted expenditure month on month. If you regularly make this comparison, you will see cash flow issues coming.
Combining your expenditures and your sales will allow you to tell if you have an overstocking problem. This is when you buy things from wholesalers faster than you are selling them. This might seem an obvious thing to notice but it can certainly creep up on you. If you identify an overstocking problem, purchase less until sales improve.
All these economic metrics of business success are closely interrelated. Appreciating that interrelation is the only way to catch cash flow problems on the horizon and to prepare accordingly before they hit you.