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Tag: Cash Flow Problems

How To Resolve Your Cash Flow Problems

by lauramills
How To Resolve Your Cash Flow Problems

Managing cash flow is critical to the success of any business. Get it right, and shareholders, creditors, and employees are happy. Get it wrong, and the company could end up on the ropes.

Cash flow problems can beset even profitable companies, particularly those experiencing rapid growth.

So, how do you protect your company from future cash flow issues?

  1. Cut Costs 

Cost-cutting will have a more immediate impact on your bottom line than revenue-raising efforts. You could for instance place a freeze on bonuses and overtime payments, reduce the number of employees through attrition or redundancy. You could also approach creditors to ask for better terms.

  1. Carry out credit checks

Before taking on new clients, carry out credit checks. Companies that regularly make late payments or default on payments should be red-flagged. You should also get new clients to sign contracts that include your payment terms.

  1. Offer early payment discounts

Encourage your clients to pay earlier than normal by offering early payment discounts. The early payment discount should only be used when the company is in urgent need of cash. Do it too often, and you will make a serious dent in your profit margins.

  1. Reduce your payment terms

Cut your payment terms from 60 or 90 days down to 30. Think of it this way: when you allow customers to pay in arrears for your products or services, you’re essentially giving them short-term unsecured loans.

  1. Lease rather than buy

Consider leasing rather than purchasing cars, property, office furniture, machinery, and IT and telecommunications equipment. The benefit of renting rather than buying is that you will only have to make small monthly payments. This should help your cash flow.

  1. Raise your prices

Companies are often reluctant to raise their prices for fear they’ll lose valued customers to competitors. But even a small rise in costs can chip away at your profit margins. You can overcome customers’ resistance to a price rise by offering bundled products or services.

  1. Issue invoices promptly

Many companies don’t issue invoices quickly enough or chase late payments. Consider this: every sale has already cost the company in some way, whether that’s the purchase of raw materials, warehousing, labour, sales and marketing, and distribution. If you don’t collect what you’re owed, you’ll be worse off than if you never made the sale.

  1. Use invoice financing

Hire a company that provides invoice financing (either invoice discounting or factoring) to receive an immediate cash injection. Such companies provide funding against your unpaid invoices for a fee.

Usually, you will receive up to 85% of the value of the outstanding invoice within 24 hours. You’ll then receive the remaining 15% minus the broker’s fee once your customer has paid the outstanding invoice.

  1. Get external funding

You could approach banks or lending institutions for a short-term loan or use other funding sources such as self-finance, partners, investors and alternative finance like peer– to–peer lending.

  1. Hire a part-time Chief Financial Officer 

A part-time CFO from the CFO Centre will look for all the things that pose a threat to the company and work with you to resolve them. Your CFO will look for ways you can meet your most pressing financial requirements and review all incomings and outgoings to find where improvements and savings can be made.

You’ll be encouraged to use regular cash flow forecasts. Such forecasts will alert you to possible cash shortfalls in the near future. You can then make arrangements for additional borrowing, for example. It will also help decision-making around whether to hire new staff, raise your prices, move premises, find new suppliers or tender for a large contract.

We love numbers, we understand how to interpret them and use them to help get your business where you want it to be.

For more information, you can visit How It Works or get in Contact with us to speak with one of our dedicated team.

Understanding Cash Flow Problems

by lauramills
Understanding Cash Flow Problems

Cash flow problems put your company at risk.

Unless your company manages cash flow effectively and uses regular cash flow forecasts, it is in jeopardy. Cash flow shortfalls mean:

  • You can’t pay suppliers on time
  • You can’t make debt repayments on time or at all
  • You can’t buy new inventory to meet customer demand
  • You can’t pay staff wages
  • You can’t compete for new contracts
  • You can’t advertise to attract new clients
  • You can’t hire new staff.

Causes of Cash Flow Problems

Conditions that can impact your cash flow include:

  1. A fall in sales or a decline in gross profit margins. This could be a result of changing economic conditions (such as the most recent global pandemic), increased competition, or a drop in demand for your product or service.
  2. An unprofitable business model
  3. Using a negative cash flow business model. You offer customers or clients credit terms of anywhere from 30 days to 90 days (or longer).
  4. Having excessive debt
  5. Having inadequate stock or credit and debtor management.

Your cash flow problems can be due to any of the following:

  • Late paying customers: When a customer doesn’t pay on time, your business can experience cash shortfalls.
  • Poor debt collection processes: Not issuing or chasing up invoices in a timely fashion can result in reduced cash flow.
  • Low prices: If your prices are too low, but your expenses are rising, your company is almost certain to experience cash flow problems.
  • Low sales Too often business owners try to resolve poor sales by looking for new clients. But this incurs more costs in areas like advertising and marketing to attract those new clients.
  • Too generous payment terms: Allowing customers to pay in arrears for goods or services received is a bit like giving those companies short-term, interest-free unsecured loans.
  • Overtrading: Rapid growth means your company will have to invest in more stock, equipment, or hiring staff to meet demand. If you don’t have sufficient working capital, the company will experience cash flow problems.
  • Too much stock: Every dollar you have in inventory is a dollar you don’t have in cash.
  • Too much debt: If you’re overleveraged (when you’ve borrowed too much and can’t pay interest payments or principal repayments or meet operating expenses), you’re likely to experience cash flow problems.
  • Cash Management: Cash is vital to your business. Without it, your business won’t be able to pay suppliers and creditors and to meet its payroll obligations.

Finding and fixing the cause of your cash flow problems in your business and putting systems in place to manage cash effectively is vital for your company’s survival.  Fortunately, most cash flow problems can be resolved with help from the right people. They will help you to identify the causes of cash flow problems in your business and advise the best way to fix them.

Understanding Your Cash Flow Position

by lauramills
Understanding Your Cash Flow Position

If you are having cash flow issues, it is essential that you know the current position of your business finances. Be honest with yourself and make sure you know if or when your business needs help.

To do this you need to create your cash flow forecast, you need to make sure you know what cash is coming in and what payments need to be processed, this can be constructed in a simple excel spreadsheet.

Tips that can assist in preparing an accurate cash flow forecast:

  • Call all your current clients/customers and speak about their current situation and find out when the funds will be received. Don’t hold back from entering into a payment plan with them; this will give you a clearer picture of your cash flow.
  • Hold off on larger payments that are not yet due.
  • Assume a reduction in your revenue; you must be realistic. If you know that your business will be impacted over time, adjust your revenue to reflect this in the cash flow.
  • Eliminate discretionary spending. What can wait!!
  • Employee bonuses, if there are bonuses due and the employees are depending on them, you should pay them if possible. If you can hold off on paying them for 60 days, then do so.
  • If there are any tax bills requiring to be paid, speak with the tax office or your Accountant about a payment plan.
  • Be transparent with your employees.

Having a rolling cash flow forecast and updating it weekly, will help you make sure that you are staying on top of any issues that may come to a head.

Once you have listed all known transactions, you will then need to stress-test the scenarios, for example what will happen if your top customer can no longer pay their account?

Questions you should ask yourself – be truthful

  • Do I know where my business is at financially?
  • Are we insolvent already?
  • Have I spoken to my suppliers and customers and do I have a clear understanding of where they currently stand?
  • Have I spoken to the ATO?
  • Do I need help? If so, make sure they are qualified.

Many cash flow problems are related to “working capital cycles” and the timing of cash inflows vs outflows.  For example, the business pays its staff weekly and suppliers on 14-day terms, but offer its customers 30 day terms.  Therefore, the business needs to fund the gap.  A part-time CFO will explain your own working capital cycles and present a solution to improve your cash position.

The CFO Centre has been assisting SME’s over 20 years, offering highly experienced Chief Financial Officers on a flexible, part-time basis. As CFO’s we are qualified Accountant’s with the added benefit of extensive commercial experience across multiple sectors, so we know what to look for and how to respond.

You can learn more about How It Works here, or give us a call on 1300 447 740.

 

Photo by Towfiqu barbhuiya on Unsplash

Need Help with Your Cash Flow?

by charlottenoble
Need Help with Your Cash Flow?

Cash flow problems put your company at risk.

Unless your company manages cash flow effectively and uses regular cash flow forecasts, your company is in jeopardy. Cash flow shortfalls mean:

  • You can’t pay suppliers on time
  • You can’t make debt repayments on time or at all
  • You can’t buy new inventory to meet customer demand
  • You can’t pay staff wages
  • You can’t compete for new contracts
  • You can’t advertise to attract new clients
  • You can’t hire new staff.

This will have a knock-on effect on your company’s profits, market share, and brand reputation. It could even result in your company going into liquidation.

One US bank study found that 82% of business failures are due to poor cash management.

How to Fix Your Cash Flow Shortfalls

Fortunately, most cash flow problems can be resolved with help from the right people. They will help you to identify the causes of cash flow problems in your business and advise the best way to fix them.

To find out how to fix your cash flow problems and prevent them from recurring, grab your free copy of the “Cash Flow” report NOW!

Causes of Cash Flow Problems

Conditions that can impact your cash flow include:

  • A fall in sales or a decline in gross profit margins. This could be a result of changing economic conditions (such as the most recent global financial crisis), increased competition, or a drop in demand for your product or service.
  • An unprofitable business model
  • Using a negative cash flow business model. You offer customers or clients credit terms of anywhere from 30 days to 90 days (or longer).
  • Having excessive debt
  • Having inadequate stock or credit and debtor management.

Your cash flow problems can be due to any of the following:

Late paying customers When a customer doesn’t pay on time, your business can experience cash shortfalls.

Poor debt collection processes Not issuing or chasing up invoices in a timely fashion can result in reduced cash flow.

Low prices If your prices are too low, but your expenses are rising, your company is almost certain to experience cash flow problems.

Low sales Too often business owners try to resolve poor sales by looking for new clients. But this incurs more costs in areas like advertising and marketing to attract those new clients.

Too generous payment terms Allowing customers to pay in arrears for goods or services received is a bit like giving those companies short-term, interest-free unsecured loans.

Overtrading Rapid growth means your company will have to invest in more stock, equipment, or hiring staff to meet demand. If you don’t have sufficient working capital, the company will experience cash flow problems.

Too much stock Every dollar or pound you have in inventory is a dollar or pound you don’t have in cash.

Too much debt If you’re overleveraged (when you’ve borrowed too much and can’t pay interest payments or principal repayments or meet operating expenses), you’re likely to experience cash flow problems.

Cash Management

Cash is vital to your business. Without it, your business won’t be able to pay suppliers and creditors and to meet its payroll obligations.

Finding and fixing the cause of your cash flow problems in your business and putting systems in place to manage cash effectively is vital for your company’s survival.

10 Ways To Resolve Your Cash Flow Problems

by lauramills
10 Ways To Resolve Your Cash Flow Problems

Managing cash flow is critical to the success of any business. Get it right, and shareholders, creditors, and employees are happy. Get it wrong, and the company could end up on the ropes like Carillion.

Cash flow problems can beset even profitable companies, particularly those experiencing rapid growth.

So, how do you protect your company from future cash flow issues?

 

1. Cut Costs 

Cost-cutting will have a more immediate impact on your bottom line than revenue-raising efforts. You could for instance place a freeze on bonuses and overtime payments. You could also reduce the number of employees through attrition or redundancy. You could also approach creditors to ask for better payment terms.

 

2. Carry out credit checks

Before taking on new clients, carry out credit checks. Companies that regularly make late payments or default on payments should be red-flagged. You should also get new clients to sign contracts that include your payment terms.

 

3. Offer early payment discounts

Encourage your clients to pay earlier than normal by offering early payment discounts. The early payment discount should only be used when the company is in urgent need of cash. Do it too often, and you will make a serious dent in your profit margins.

 

4. Reduce your payment terms

Cut your payment terms from 60 or 90 days down to 30. Think of it this way: when you allow customers to pay in arrears for your products or services, you’re essentially giving them short-term unsecured loans

 

5. Lease rather than buy

Consider leasing rather than purchasing cars, property, office furniture, machinery, and IT and telecommunications equipment. The benefit of renting rather than buying is that you will only have to make small monthly payments. This should help your cash flow. You can also claim the lease expense.

 

6. Raise your prices

Companies are often reluctant to raise their prices for fear they’ll lose valued customers to competitors. But even a small rise in costs can chip away at your profit margins. You can overcome customers’ resistance to a price rise by offering bundled products or services.

 

7. Issue invoices promptly

Many companies don’t issue invoices quickly enough or chase late payments. Think of it this way: every sale has already cost the company in some way, whether that’s the purchase of raw materials, warehousing, labour, sales and marketing, and distribution. If you don’t collect what you’re owed, you’ll be worse off than if you never made the sale.

American entrepreneur Nolan Bushnell says a sale is a gift to the customer until the money is in the bank.[1]

 

8. Use invoice financing

Hire a company that provides invoice financing (either invoice discounting or factoring) to receive an immediate cash injection. Such companies provide funding against your unpaid invoices for a fee.

Usually, you will receive up to 85% of the value of the outstanding invoice within 24 hours. You’ll then receive the remaining 15% minus the broker’s fee once your customer has paid the outstanding invoice.

 

9. Get external funding

You could approach banks or lending institutions for a short-term loan or use other funding sources such as self-finance, partners, investors and alternative finance like peer– to–peer lending.

 

10. Hire a part-time Chief Financial Officer

A part-time CFO from the CFO Centre will look for all the things that pose a threat to the company and work with you to resolve them. Your CFO will look for ways you can meet your most pressing financial requirements and review all incomings and outgoings to find where improvements and savings can be made.

You’ll be encouraged to use regular cash flow forecasts. Such forecasts will alert you to possible cash shortfalls in the near future. You can then make arrangements for additional borrowing, for example. It will also make decision-making over whether to hire new staff, raise your prices, move premises, find new suppliers or tender for a large contract.

 

Put an end to your cash flow problems now by calling the CFO Centre today on 0800 169 1499. To book your free one-to-one call with one of our part-time CFOs, just click here.

[1] ‘Finance for the Non-Finance Manager’, Siciliano, Gene, McGraw-Hill Companies, Inc., 2003