Not sure where your cash is coming or going?
In business, cash flow is your lifeblood.
And most every decision you make (or don’t make) affects cash flow.
When cash flow issues occur, then decision are made based on bad or inaccurate data.
These decisions cause more issue, which lead to a downward spiral for the business.
There are 3 issues that destroy healthy cash flow.
Don’t let these issues harm your business.
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Following are the 3 issues that destroy cash flow and what to do about it.
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What Are Cash Flow Issues
Positive cash flow is the lifeblood of your business. Without question, negative cash flow will sink your business faster than nearly anything else (except for, maybe, a scandal).
In most cases, a cash flow issue simply means you’re getting bad or inaccurate information about your cash flow and it’s negatively impacting your business.
If you don’t have cash flow, you aren’t able to cover your liabilities. If you have any debt or loans, you feel even more pressure. And if you’re not able to pay taxes, the full force of the IRS may fall down on you like an avalanche.
Cash flow issues could be hiding right under your nose and you don’t even know it.
#1. Low Net Profit
This is more a business issue than a cash flow issue, but cash flow is how you measure this.
Low net profit means you’re not making enough after expenses, liabilities, and taxes to create a profit. This is positive cash flow. Without this net profit, your business has little chance of survival–let alone growth.
#2. Delays or Errors in Accounts Receivable
If you don’t have cash coming in but you have cash going out, the river bed will eventually run dry. Delays, even by hours, can have a negative impact on how you make decisions about your business. Errors are like negative multipliers for your business. For every error in your financials, expect a multiplied negative effect for every decision you make.
Delays and errors in your accounts receivables is like cancer for your business.
#3. Overspending on liabilities and expenses
Some Owners and Executives think they can spend their way out of paying taxes. This is simply not possible. The more you spend, the less you have to pay your taxes. The IRS will get their cut, no matter what you do, even if you lower your tax obligation, it can rarely (if ever) be reduced to zero. So, if you go on a spending spree, it better be tax beneficial and a part of your tax obligation reduction plan or it’ll come back to haunt you later.
How Do Cash Flow Issues Affect A Business?
When cash gets tight, Owners and Executives are faced with tough decisions.
This stress and pressure can result in mistakes being made, which leads to ongoing financial issues or permanent closure of the business.
Cash flow is the lifeblood of your business, but when it’s an issue, here’s what you face:
- Decreasing sales and low-profit margins
- Outstanding accounts receivables
- Overestimating growth periods
- Too much inventory on hand
- Seasonal business structure
- Inaccurate forecasting and bookkeeping practices
Want to avoid all of these cash flow side effects (and more)?
How Do I Hire Virtual, Outsourced Bookkeeping & Accounting Services?
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Don’t let behind books and inaccurate accounting get in the way of growing your business.
