Cash Flow Concerns That Can Freeze Your Business

Congratulations. You’ve built a profitable company; however, profitability isn’t the finish line for you. Your next task is to establish and maintain a sustainable business cash flow. Businesses fail because of poor cash flow management. Conversely, companies that balance growth and profits can and often experience negative cash flow.


Common Cash Flow Issues to Avoid


If you understand the various principles that lead to cash shortages at multiple times of company growth, you can preserve your financial situation by regularly paying your vendors punctually. The cash flow problems businesses face at various development phases are outlined below.


Cash Flow Problems for Startups 


As soon as you begin your business, you tend to remain vigilant against cash inflows that could be negative in detail. Unfortunately, however, cash can still leak through in these manners.


Mistaking Cash Flow for EBITDA


Earnings before interest, taxes, depreciation, and amortization (EBITDA) does not alter the sum of money coming in due to loan interest, taxes, instrument repairs, or investment earnings. Therefore, establish a quick yet complete overview of your liquidity management by calculating your EBITDA. For a more accurate representation of your company’s financial trajectory, producing a cash flow analysis is more reliable.


DIY Cash Flow Tracking


If founders and entrepreneurs cannot do it alone, they should consider hiring specialists to assess their company’s financial health. Please pay special attention to evaluating your financial status, as it’s crucial in shaping your future. Boot-strapping accounting tasks is one of the most common causes of poor cash flow and cash flow problems. Leave cash flow management to the experts. 


Spending Too Much On Growth


Entrepreneurs are innovators who enjoy creating new products and starting new verticals that require financial investments in R&D. Conversions, sign-ups, and sales are incredibly satisfying. Attracting new customers, stealing market share, and creating a buzz in your industry are thrilling. By hiring talented newcomers, incentivizing front-line workers, upgrading programs, and making public appearances, you demonstrate support for growth. However, these actions can raise your risk level by accelerating your duplication of spending. As a result, your return on investment often gradually declines, which can cost you money and negatively affect your profits.


MoolahMore can help you identify areas that might lead to one of your above difficulties. Apart from its performance and efficacy, you receive an ongoing, accurate assessment of your wealth position. Furthermore, you get guidance on how best to interpret your financial statements and choose to fix your cash successfully.


When a business is growing, they need to make sure that they can scale their cash flow to match the growth of their company


Cash Flow Problems for Business Scaling


Your company continues to grow as you get more business ideas. With new opportunities come new challenges. But you can sidestep the dangers if you know what to look for.


Allowing Slow Collection of Accounts Receivable


You might have been too eager to add additional customers. Maybe your receivables person is wearing many hats. Regardless of your reason for allowing bills to linger, your business’s cash flow may become harmful as a result.


Keeping Inventory Longer Than Necessary


You know that expensive, stagnant inventory puts pressure on your working capital. Often, managers overlook the quiet strain of dead stock until the issue becomes substantial. Don’t be lulled into a cash flow problem. Instead, look at your inventory holding costs with the same speculative eyes you give other items.


Forgetting Overhead Costs


At the beginning of your ventures with vendors and service contractors, you were exposed to powerful downsides from your uncompromising contracts. However, as your company has progressed, you build your bargaining power when negotiating with suppliers to lower the rates of goods sold. Unfortunately, neglecting to bargain with vendors to keep your cost of goods sold under control is a common problem and causes poor cash flow, even for flourishing companies.


Failing to Forecast Revenue


Each month’s sales can vary according to customer trends or seasons, signifying that a traditionally reactive business won’t perform well. Outdated enterprises keep reactive, capital-intensive approaches while reactive investments turn obsolete quickly. As an alternative, closely study the inflation rate and modify your business to reflect revenue fluctuations.


Cash Flow Problems for Enterprise Businesses


A well-established, successful company can still find itself in need of money. Here’s an example of how that can happen.


Poor People Management


Smaller organizations and scrappy startups do not have large-scale wage growth like greater companies do. Payroll and health benefits are leading minor business cash flow issues. If you do not actively train your staff on the importance of their job and creativity in moving your enterprise forward, your greatest asset can become a hindrance.


Longer Sales Cycle


Business experts concur that the expense associated with getting new customers rises significantly with each new square on the business-cycle stage. So, naturally, that hits your cash flow hard.


Too Much In-Cash Holdings


Yes, liquidity is one of the pillars of a well-balanced financial picture. Holding on to an excessive amount of cash, however, can have the opposite effect, such as the following:


  • Opportunity cost- Excess funds should work for your business. 
  • Perception problems from investors and shareholders- A frozen surplus raises suspicions and mistrust.
  • Lax management 


Avoiding these Cash Flow concerns will lead you and your business in the right direction, and proper cash flow management will significantly minimize the risk of your company’s cash flow problems. 


MoolahMore can help you with cash flow analysis. Besides its top-grade performance and effectiveness, you secure a constant, in-depth examination of your money position. Do more with MoolahMore! Sign up for a free trial now!


MoolahMore is a free cash flow analysis tool that allows you to track your cash flow and make better decisions.