Aside from low sales, here are three common causes of cash flow issues that every business owners needs to face at some point in their lives.
You are spending beyond your profit margins
If you are not looking into every dollar spent on major expenses such as office costs, capital expenditures and human resources, you are likely to suffer from a cash flow crisis. When it happens, ask your accounting department to give you a copy of the profits and losses statement. It will help you gauge how much you are making each month. You’ll know whether or not your company is bringing in enough profit to justify projects such as equipment purchase, renovation and expansion. Use the P and L statement as one of the tools in the decision-making processes to ensure that your choices are relative to your income.
Poor accounts receivables collections
Do you have the habit of stretching out your payment terms to consumers -sometimes for up to 4 months? If so, you are crushing your business cash flow cycles tighter and tighter, until you reach the short end of the stick.
As the owner of a small business, make sure that customers pay their bills on time. Make the accounts receivable collections a top priority by coming up with a comprehensive strategy. Maximize collections such as offering discounts on early payment, creating a payment plan for delinquent clients and submitting clear and complete invoices to your client’s accounting department.
Remind clients that their payment is past due on the first day they missed it. It’s because it is more difficult to collect receivables when they go uncollected for a longer period of time.
Your budget is not based on your business plan
If you don’t track your business expenses against a company budget every month—meaning you have little idea how much you should be spending on certain categories like staffing, production and supplies, it’s easy to overspend.
While a company budget may appear to be restrictive, it is actually a tool that helps your business achieve its financial goals. Without it, you may spend it on anything that you think would be better form your business, when in fact, you no longer know where it’s going. On the other hand, if you make a financial action plan based on your business plan, your budget can help you evaluate business costs and revenues and benchmark company performance. It can also help you compare your figures for projected margins and growth with your competitors.
ALC Commercial helps you drive your business to its highest potential with our quick processing business loan products to help you address your cash flow problems. We understand that the key drivers of your businesses include working capital, costs and sales. These are also the areas that require funding. If you think you are having issues in financing these areas, call us. With the right loan product we can help you achieve profitability and cash flow stability.
Contact ALC Commercial today!