Cash Flow and Business Failure

Many small businesses will at some point or another find themselves with a lack of cash flow.  Cash flow is very important when it comes to the success of a business.  Here are a few questions that you may want to ask yourself when it comes to measuring the health of your cash flow:

  • Have you created a written plan and a cash flow forecast for your business?  Without having a plan of action, you will find yourself moving blindly.  This is not usually something that leads to success in the business world.
  • Are you doing everything that you can in order to meet your business goals?  Sometimes business owners will find that they have a lot of things that take up their valuable time.  People become so overwhelmed by their work and they don’t usually have enough time to take a step back and look at the bigger picture.  This is critical when it comes to making decisions for the business.
  • Do you have a good understanding of how your business is doing financially?  IF you don’t, then you might find yourself on edge most of the time.  You will want to take some time to learn these financial aspects of your business through and through.
  • Do you monitor and plan the cash flow of your business often?  You should do this on a weekly basis.  You should always check your cash flow situation before you make a big purchase or veer off of your plans for any reason.  This will help you to see if you can or cannot afford these purchases.
  • Have you done any renegotiation when it comes to payment terms with suppliers?  If you can change your payment terms to longer terms, then that will give you more cash flow instantly.  If you pay them on time, then you will usually be able to build up your trust with them.
  • Are you effectively seeking payment from your clients?  Do you know how long it takes your customers to pay you?  You can give them incentives to pay off their accounts sooner.
  • Do you use an overdraft?  If you are able to get longer credit terms, then you really don’t have to use your overdraft.  Overdraft protection can prove to be quite pricey.

You should never overestimate the importance of the cash flow for your business.  Ensure that you ask yourself these questions often to see where you are.