When cash gets tight, Owners and Executives have tough decisions to make.
In some cases, they have to make impossible decisions.
Most of the time, they decide to keep the doors open at any cost.
This cost could be business shrinkage, employee layoffs, customer loss, and more.
Not only do these negative effects plague the business, but it also dismantles their reputation in the marketplace.
Cash flow issues in a business is not a “behind closed doors” concern.
If you have cash flow issues in your business, it will eventually become public. It may not show up on a leaked balance sheet, but, instead, in how you run your business and make decisions.
Savvy business owners will see this and take advantage of your cash flow issues promptly.
This is why it’s so imperative to know the six side effects of cash flow issues.
It’s also important you get an outsourced accounting department in your corner.
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Following are the six ways cash flow issues tear down your business.
Understand the value of hiring an outsourced accounting department.
The Six Consequences of Cash Flow Issues
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:
#1. Decreasing sales and low-profit margins
When a company doesn’t have a well-enough pricing strategy, cash flow will be lower than necessary. This results in not having enough cash to keep the doors open. Ultimately, if this problem is ignored for long enough, the business will fail.
#2. Outstanding accounts receivables
If you have outstanding accounts receivables, you’re leaving money on the table. And if you aren’t collecting your AR, then you aren’t generating cash flow. Let this delayed AR issue go on for too long and you’ll end up having to closer your doors.
#3. Overestimating growth periods
Unrealistic growth forecasts can sink a business just as fast as negative cash flow. In fact, overambitious growth forecasts creates negative cash flow before the business even starts. Get forecasts wrong (or too far off), and it hides an expense sheet much bigger than your cash flow to maintain it. If this goes on for too long, the business will eventually go under.
#4. Too much inventory on hand
If businesses overstock, but sales don’t keep up, it can put the business in a tight jam. Overbuying inventory puts a strain on current cash flow. If businesses do this too often and repeat too often, it will eventually eat up all the cash flow, as well as steal from future sales. Owners and Executives must balance inventory purchases and sales delicately.
#5. Seasonal business structure
Off-season or downtime must be accounted for when expenditures go up during season or uptime. Assuming that you’ll have a great season upcoming is a recipe for disaster. And if you spend cash you don’t even have yet, you’re starting in the hole and may have killed your business before it even got a chance to succeed.
#6. Inaccurate forecasting and bookkeeping practices
As businesses grow, Owners and Executives know that things get more complicated. Accounting and Bookkeeping softwares can become a crutch for businesses until things get too big to manage. At this point, even if cash flow is tracked, it’s probably not being tracked properly, which is like laying mines for the business to trigger later on down the road. Put enough of these in the road, and the business secures it’s failure.
Want to avoid all of these cash flow side effects (and more)?
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