Managing cashflow efficiently involves having a clear understanding on when and where cash enters and exits a business, it also involves being able to predict future occurences in order to be able to prepare properly for it and if possible, avoid them.
1. Late payments.
Although it is highly anticipated that every client pays their invoice on time, it however doesn’t occur frequently. Banking on that income before getting it becomes a cashflow problem and, that can put your business in jeopardy since that means you can’t pay your bills on-time.
In order to curb this, offer multiple forms of payment, follow-up clients who haven’t paid on time, have appropriate billing strategies for late payments and for clients who refuse to pay.
2. Lack of profitability.
While a lack of profit is one of the major reasons why a lot of businesses fail, making profits also doesn’t translate to the business having no cashflow problems, expecially when most of the profits are injected back into the business. A business is only truly profitable if it has revenue in the bank after paying of all expenses.
It is therefore very important that every business should be on the look out for profit-making opportunities by adding new products, offering discounts, offer consultation services and the likes
3. The unexpected.
There will be unexpected and unanticipated costs that you’ll have to tackle. It could be anything from a key piece of equipment breaking down, a natural disaster damaging your office, responding to a negative customer complaints, having to change your business model, or losing one of your top employees. All of these can definitely impact your cash flow almost instantly.
How to avoid the unexpected: It’s impossible to predict each and every possible outcome. The best thing that you can do is take as many preventive measures as possible. For example, creating a cash flow forecast for the the next six to 12 months gives you the chance to build an emergency fund so that you can handle most of these unexpected occurencies. Other steps you could take would be to have insurance, provide amazing customer service and retain your top-performers.
you should always file the appropriate amount of taxes you owe on-time. because, if you don’t file your taxes or make an error while filing them, you could be subject to to penalties, interest payments and even an audit from the IRS.
Mark on a calendar your tax deadlines and speak with a tax specialist. They can make sure that your taxes are in-order and can also help you find deductions. Also make sure that you have enough money set aside to pay your taxes. Although it may not be the exact amount, you can look at last year’s taxes to at least get an approximate figure.
Some businesses thrive on particular seasons of the year, like marketing some farm produce that are only available for particular periods in the yeat, or selling rain-coats, which would only record high sales during the rainy season. This could mean that the business would encounter cashflow problems through-out the rest of the year.
The above-mentioned cash flow forecast not only could clue you in on seasonal fluctuations, it can also help you set aside enough money to pay your bills when business has dried-up. You can also diversify your business so that there’s consistent cash flow. You could have alternative services to offer during your down-season.
6. Withheld funds.
Investors and banks can withhold funds if your business hasn’t been able to meet expectations or your incomings are less than what was expected. This becomes a cash flow surprise when you go to secure a loan for a broken piece of equipment only to be turned down because you’re a risk.
Always try to ask for more loan than you actually require, like around 25 percent, as well as a line of credit. This should help you cover any emergencies without having to ask for more money.
7. Hidden costs.
No matter how prepared you are there are bound to be some hidden costs that were not anticipated. It could be employee turnover, taxes, legal and accounting fees, repairs and replacements, permits and licenses, insurance, credit card/loan interest and utilities. Some of these may seem insignificant at first, but they can quickly add-up until they become a significantly large obstacle.
To solve the problem of hidden costs you should consult a fellow business owner and people more experienced in that partcular line of business in order to get a preview of the anticipated hidden costs.
8. Unanticipated growth.
While growth is a definitely a goal, unanticipated growth can catch you off-guard. Remember, the more you business grows the more cash you need to pay for staff, a larger property, and more products and services. Those are all expenses that can’t wait until you have more cash flow.
How to avoid unanticipated growth issues: Implementing a business system in advance gives you the chance to test out the systems that work best for your business. For example, finding invoicing software that has features like sending automatic payment reminders removes those time-consuming administrative tasks. Now that you’re free from those tasks, you can focus on tasks like generating more revenue to handle this rapid growth.