Causes of cashflow problems in your business
Common causes of cashflow problems including late customer payments and seasonal demand.
Some common causes of cashflow problems can be avoided if you are prepared for them.
Poor financial planning
If your business doesn't have a working budget, there won't be a healthy financial focus on your business. A budget will help you to create specific and realistic goals and is a guide on considering what to spend throughout the year. See keep business finance forecasts up to date.
Emergency funds
If you haven't set up an emergency fund, it may be difficult to continue trading if unexpected expenses come up. These could include a tax bill, increase in supplier costs or repairs to premises. You could start by working out how much you might need and begin to save even a small amount each month.
Late customer payments
When customers make late payments, financial problems can quickly arise. Making some small changes can help you to avoid this situation, including sending invoices quickly and accepting multiple payment options. See ensure customers pay you on time.
Uncontrolled growth
Growth of a business is generally a good thing, but if it comes quickly, it could mean you need to scale up accordingly with more employees or better equipment. See should I grow my business?
Seasonal demand
Some businesses do the majority of their trading during a short part of each year which can cause irregular cashflow patterns. There are a number of steps that you can take to ensure cashflow is managed effectively.
Low profits or losses
Profit is the main source of cash in a business so if there isn鈥檛 enough coming in, all of your outgoings may not be covered. This could lead to borrowing more than you can afford and further problems down the line.
Low profits can be caused by issues such as low staff productivity, poor ordering and delivery processes and ineffective marketing. See how to turn around a struggling business.
High overhead expenses
If overheads such as your rent, internet and other utility bills are too high, it could become difficult for you to pay them on time. You should review all of your expenses on a regular basis, and identify those you can cut down on or switch to a cheaper option. See set up a profit and loss account for your business.
Overstocking
Excessive inventory or overstocking can impact cash moving in and out of your business. If you predict your orders, you can work out how many you should receive in a week or a month so you can stock what you need. You could do this manually or use an inventory management system. See stock control and inventory.