Cash Flow: How to Avoid the Top Problem For New Businesses

982

One only has to initiate a quick search on Google to see how many businesses fall flat on their faces during their first years of operation. As you may have gathered from the title of this article, one of the big reasons behind this is cash flow.

For a lot of business owners, this is incredibly frustrating. After all, they have seemingly done everything right. They have set up their organization and got those elusive first contracts. Unfortunately, more often than not they have just grown a little too quickly, and this means that they run out of cash at the decisive moment.

cash flow for new business
Shutterstock Licensed Photo – By Wright Studio

Nowadays, services like invoice factoring can help businesses rise from these problems. In a bid to ensure that you don’t succumb to cash flow in the first place though, here is some advice to help you along your way.

Keep on top of your cash flow forecast

First and foremost, you need to prepare a cash flow forecast. This does exactly as the name suggests; it forecasts what is going to be going in and out of your organization over the next year.

This is crucial so that you are at least aware of what might happen. Particularly if your business operates with seasonal changes, it allows you to foresee potential problems very quickly.

The importance of keeping up with stock

During the early days, it can be difficult to legislate expenditure on a stock control system. This is something that we would fully advocate though, as this is one of the main reasons why companies fall into the dreaded C-trap.

Fortunately, stock control systems are a lot more affordable than they once were, so the main resource involved in setting up such a platform is time. By knowing exactly what stock your company holds, you understand exactly what your organization is lacking and what it may have to spend money on in the near future.

Keeping the bank happy

It’s one of those things that is usually easier said than done, but one might be surprised at how important it is to keep the bank on-side.

As we have already alluded to, there is now a wealth of options open to those businesses who are struggling with cash flow, but one of the easiest ones is just increasing the overdraft limit with your bank. If you are on a good footing with them, it goes without saying that the process is a lot easier.

Identifying cash flow threats early on

In short, you should be doing anything but burying your head in the sand. Usually, potential cash flow threats can be seen very early on. Sure, there are occasions where you might have just taken a huge order, which throws your cash flow into all sorts of problems. In general, these things build up slowly though, and it’s not a case of waking up one day and seeing that you are suddenly in the midst of a cash flow crisis.