When to start worrying about your business cashflow

Learn when to start worrying about your business cashflow in our latest blog post, geared towards small and medium sized businesses in the UK.

Cashflow troubles can sneak up on the most vigilant of businesses, turning a smooth operation into a frantic scramble. Knowing the signs can be your first line of defence.

A graph with declining arrows and scattered coins. 35mm stock photo

Understanding Your Cashflow Cycle

The cashflow cycle is the backbone of your business, dictating when money enters and exits your accounts. Understanding this cycle involves recognising the timing of your income, alongside your fixed and variable expenses. Mismanagement or misunderstanding can lead to cash shortages, even if your business is profitable on paper. A thorough grasp helps in forecasting and preparing for future financial challenges, making it essential for sustained business health.

Signs Your Cashflow Might Be in Trouble

Key indicators of cashflow problems include unpaid invoices exceeding 14-30 days, which can quickly derail your financial stability. Additionally, constantly dipping into your overdraft or being unable to cover routine expenses without financial gymnastics signals a deeper issue. Regularly monitoring these aspects can prevent small financial cracks from widening into chasms that threaten your business’s survival.

The Impact of Poor Cashflow Management

Poor cashflow management can lead to a host of problems for your business, most notably restricting your ability to invest in growth opportunities. In the UK, thousands of companies face insolvency each year, with a significant portion attributable to the mismanagement of cashflow, particularly slow or non-payment of invoices. Beyond the immediate financial strain, it can also erode supplier and customer trust, further complicating recovery efforts.

Strategies for Improving Your Cashflow

One effective strategy to improve cashflow is to enforce stricter payment terms and to consider charging interest on late payments. This not only encourages timely payments but also compensates you for the delay. Furthermore, regularly reviewing and optimising your spending can free up cash, making your business more resilient and flexible. Investing in cashflow management software might also provide the insights needed to make informed financial decisions swiftly.

Preventing Cashflow Issues Before They Start

Proactive measures are key in preventing cashflow problems. This includes conducting credit checks on new clients, setting clear payment terms, and maintaining an emergency cash reserve.

Educating your team on the importance of cashflow and how their roles impact it can foster a cash-conscious culture within your company.

Regular financial reviews (ideally monthly at a minimum) can also identify potential issues before they escalate, allowing for timely intervention.

When to Seek Professional Help for Cashflow Problems

If, despite your best efforts, cash flow remains a persistent issue, it might be time to seek professional help. Accountants and financial advisors can offer tailored advice, identifying inefficiencies and opportunities you might have overlooked. They can help negotiate with creditors, restructure debt, and possibly prevent insolvency.

Remember, the cost of professional advice pales in comparison to the potential cost of losing your business.