Good cash flow is closely connected with commercial success and financial health. If your business can maintain a solid flow of working capital, it’s easier to deal with unexpected situations and take advantage of tantalizing business opportunities. But, you need plenty of funds to protect your business and drive growth consistently.
Unfortunately, many business owners are unsure how to judge cash flow. If that’s how you feel, it’s urgent to learn the financial warning signs you should look out for. This guide can show you important factors to keep an eye on.
You Have Too Much Short-Term Debt
Are you starting to notice credit card bills adding up? It’s normal to use your business credit card for some purchases, but this should be to streamline your operations, not a crutch that your entire business relies on. If you’re turning to short-term financing every month to solve liquidity problems, something more profound is wrong with your cash flow.
Your Customers Are Taking Too Long To Pay
When invoices are going too long without payment, it can severely handicap your company’s ability to pay its creditors. A few clients going past due every once in a while may not be a big deal, but late payments are a habit you can’t afford to tolerate.
Your Personnel Complains
Are you constantly running to the bank to withdraw from your business’s savings account for everyday expenses? That’s a major red flag for working capital levels. You should only need to touch your savings for large purchases or emergencies, not regular overhead. In other words, if you need a boost for outsized inventory purchases, that’s fine, but you should never rely on savings for lease payments, payroll, rent, taxes, or other bills.
You Backorder Clients Often
Inventory problems are often tied to cash flow problems. It’s one thing to get surprised by larger-than-normal orders. It’s another to consistently fail to deliver because you don’t have the money to buy sufficient inventory.
Solutions for Working Capital Issues
It’s time to discuss solutions for cash flow issues. First, find the cause. Then, take steps to correct it. For example, if your customer bills are piling up, make sure your team is billing ASAP after deliveries.
The better you manage your working capital, the better your company’s overall performance. You could say that what separates entrepreneurs from managers is their skill in driving business finances.