How do I know my Cash Flow might be in Trouble?

As mentioned before, one of the biggest cliches in business is that CASH IS KING! and that without good cash flow, a company will probably fail, or at best, will struggle. The problem with this is that poor cash flow can easily creep up on an SME. Many companies don’t have a full time FD, or any type of formal finance control in place. This can make spotting cash flow problems difficult. So what can you look out for to help avoid getting into cash flow difficulties in the first place.

  1. Keep an eye on the numbers. Do you keep and maintain P&L figures, monitor your average creditor and debtor days? What about your stock turn? Do you monitor your monthly sales, and measure all these against your forecasts? Spotting anomalies early could save your business. 
  2. How is your overdraft running? If your overdraft is constantly maxed out, then it is no longer an overdraft, but is instead long term lending. The bank won’t like this! Remember, an overdraft can be recalled at any time.
  3. Are you constantly trying to extend your overdraft, get new loans, or requesting payment holidays? If you are, you are probably fire fighting, and not addressing the real problem.
  4. Are your tax affairs up to date? Unpaid tax will usually point towards some more serious issues within a business.
  5. Do you have an inability to clear debt? Are you borrowing more to pay off old debt? Robbing Peter to pay Paul? Just think as well….. the base interest rate will probably be rising soon. Can you afford an increase in your interest?
  6. Has stretching creditor days turned into serious creditor pressure?

If you are experiencing any of the things mentioned above, then the chances are you need to seek advice and take action. It could be a case of going through a simple facility review with your bank, or it might need a roots up review from a specialist. Obviously,these are not the only things, but I think are probably the most common issues people talk about.

The key to this is to take action yourself, in timely fashion, before someone (probably your bank) takes action for you. Leaving it too late will reduce the options available to you, or possibly even lead to business failure.

At the risk of sounding like an accountant (which God know’s I’m not), the numbers really do tell a story, and could probably be looked at more closely by most businesses. Pay attention to them, and if they start to look worrying, GET HELP STRAIGHT AWAY.

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