Cashflow: The blood that keeps business pumping

Cashflow is the most critical component of success for an SME. It is the blood that keeps business pumping.

There is a mix of different factors responsible for poor cashflow, internally and externally and sometimes a lack of experience within business management.

Find below some factors that you can see coming (many of them cannot be predicted) and impact on your cashflow:

Customers making late payments
Payment conditions changes, for customers and suppliers
Many payments are due at the same time
Increased costs (rent, fuel, electricity and staff)
Buying equipment you do not need
Holding excess stock (wrong view about sold quantity)
Seasonal trends changes, you have stock in the wrong time (Christmas trees in Easter)
Expanding too fast (money runs out)
The economy in general and exchange rates if you are trading internationally.

Cashflow is affected by everything you do in your business. Therefore set up different strategies, systems and procedures. Review your cashflow budget regularly (monthly, weekly and daily). Be honest! The more often you look at your figures, the better it is. Compare the projected cashflow with the actual result. The difference in between them will make you understand what is happening in your business. Don’t put your head in the sand. Several businesses don’t want to admit how bad the situation is. They are avoiding it, which usually makes the problem grow bigger.

What can you do to improve your cashflow?

Change the payment conditions for your customers, if possible.
Communicate to suppliers and clients.
Borrow money, if possible (taking into account the related costs).
Sell more. Make different deals. (not easily done).
Reduce your costs (i.e. sell your premises and rent instead).
Perform checks on your new customers.
Make sure you deliver on time.

Sometimes all of these actions may not help. Managing a turnaround process is not easy. Your business may simply be insolvent.  It’s very difficult for business-owners to close down their business. It is an emotional decision to make.

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