If the warning signs are there, act quickly. Initially, problems may not seem that serious. Sales may be slightly down or the cash coming into the business may not quite meet the outgoings.
The business carries on as normal in the hope that next month’s cash flow and sales figures will improve. However, if figures don’t improve, the business could find itself inundated with demands from suppliers and it may be difficult to pay staff.
The key is to be pro-active with measures that will put your business back on an even keel.
What should I do
By spotting the early warning signs, you will be in a much stronger position to put things right.
For instance, if your cash flow difficulties are related to sales figures, then a first step is to trade your way out of the problem. If the resources are available, step up your sales and marketing. Sell more to existing customers and tap into new markets.
If the time-delay between the raising of an invoice and the customer paying is causing cashflow problems, there are a number of possible solutions. These include:
- Focus on winning business that will generate cash quickly.
- Tighten credit control. Make sure invoices are sent out on time. Chase payment when it becomes due.
- Consider factoring or invoice discounting arrangements, where cash is lent to you by the bank as soon as an invoice is raised.
- Keep track of the financial health of your customers and suppliers.
- Change payment periods.
If there is no real chance of sales improving, then you should consider other measures such as selling assets, cutting staff and reducing costs and/or inventory in order to free up cash.