How to Identify and Fix Cash Flow Problems ?

If your business is suffering from any of the following five symptoms, cash flow problems may very well be on the horizon.

1. Your Accounts Receivables Are High

When your accounts receivables are high, you’re essentially giving your clients interest-free loans. 

To see whether your business is doing well with collecting its accounts receivables, consider keeping track of your receivables turnover ratio (net credit sales over accounts receivables balance). A low ratio might indicate it’s time to reassess how you do business.

2. You Have Too Much Inventory On Hand

Businesses that sell their products to other businesses may like to have a lot of inventory on hand to ensure they’re able to accommodate orders of all sizes. But if a majority of your funds are tied up in that inventory and your customers aren’t racing to buy all of it, your business may have a hard time growing until sales are made.

It’s time to revise your order cycles, reconsider how many product quantities to keep in stock, or make use of inventory optimization tools.

3. You’re Overextending Your Business

If you overextend your company, chances are a lot of your cash will be tied up in capital and operating expenses, leaving your business less flexible in the short term.

To avoid having to deal with the problems related to overextension, be sure to thoroughly plan your growth well in advance.

4. Your Sales Are Declining

Since your overhead costs likely won’t change, declining sales may indicate that cash flow problems are imminent. To combat declining sales, you might want to adjust your strategy. When was the last time you redefined your customer personas? How customer-focused is your brand? Today’s technology-driven world changes quickly, and your business has to keep up if you want it to survive.

5. Your Business Isn’t Profitable

You might want to reexamine your business model to see how it can be changed to enhance profitability. For starters, you could figure out how you can lower your expenses; for example, you might find that moving your computing infrastructure to the cloud will save money and increase productivity. It might also be time to think about whether it makes sense to increase your prices.

Read more: What Is Cash Flow ?

Edited by: 浪子

Bibliography

Anna Eschenburg. (n.d.). Cash Flow 101: How to Identify and Fix Cash Flow Problems. Retrieved from 
https://articles.bplans.com/cash-flow-101-the-symptoms/