How to identify your small business cash flow pressures

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cash flow for business

Identifying where your cash flow pressures are coming from is about digging deeper into your business to see what's actually happening - as opposed to what you planned for.

A significant 92 per cent of small enterprises* say that poor cash flow affects their ability to generate revenue, meaning it's an essential area to address. Understanding what causes your cash flow issues is an essential step in maintaining your ability to invest and grow.

1) Look at actual payment terms

 

Your business may operate on 30 or 60 day payment terms. However, it's worth looking at what the reality is when it comes to getting paid. If only a handful of your customers stick to the terms and your cash flow forecasting doesn't accommodate that, you'll have much less to play with than you thought. 

Of course, solving this issue isn't only about adjusting your forecasting. Having a friendly, yet professional, word with your clients about payment terms is important too.

 

2) Recalculate your monthly costs

 

Knowing exactly what your outgoings are is crucial to understanding what cash you'll have left to invest. There are a number of expenses that don't change much from one month to the next, such as staff salaries, rent or mortgage payments and other property fees. However, utility bills and adhoc maintenance expenses do change regularly. 

It's no good keying these figures into your forecasting once and assuming the maths always works out. Keep checking your actual monthly expenses and adjust your planning accordingly. You need the most up-to-date and likely picture possible in order to work out how to maintain healthy cash flow.

 

3) Compare stock inventory figures

 

Headline figures in terms of expenditure and income only give you half the information you need. To really understand where your cash flow might be falling down it's crucial you're across the latest inventory figures. 

Even when you're maintaining high profits, you might find that one product is doing really well, but another is piling up in your warehouse. Anything that's stuck in your storage facility for any length of time is bad news for your cash flow because you've paid out to buy it but haven't gotten anything back. 

Ensure your ordering processes are constantly taking into account what you really need available according to recent sales figures. This way, your extra cash is available to invest, rather than tied up in stock.

 

4) Interrogate your lead time

 

Especially if you're doing business overseas, you might have a long wait between placing your order and receiving it - not to mention being able to deliver to your customer and generate an invoice. Looking at whether you can shorten your lead time allows you to make back the money you spend on purchasing in a shorter timeframe, and keep your cash flow moving. 

Different suppliers may offer faster delivery times, or you might find that moving your distribution centre helps you reach your customers more quickly.

 

How financial solutions can ease your cash flow issues

 

No matter how many smart business decisions you make, sometimes your cash flow is affected by things out of your control. That's why it's worth partnering with a professional financial services company. 

Debtor financing, or invoice discounting, means you get the money you're owed quickly, and your financial partner waits for your clients to pay up. Meanwhile, trade finance solutions help you manage your own creditors by ensuring they're paid. You repay your finance partner once you've turned the goods into sales. 

At Classic Funding Group we offer a range of financial solutions that help you manage your business better.

Get in touch today

.* Source: Scottish Pacific SME Growth Index