Working capital is the lifeblood of any business and managing cash flow is a challenge for almost every company owner. Those who keep a close eye on the daily financial activity as well as emerging industry trends are more likely to overcome short-term finance problems that almost every company will face. When the competition stays tough, business owners must stay vigilant in order to avoid financial challenges.
Company owners must stay alert, not only in order to have that extra edge over the competition, but to keep the business viable. Managers and owners who pay close attention to the company’s financial operations will be better placed to predict, avoid and minimize the impact of a cash flow emergency. Being aware of the different risks associated with a potential cash crisis is essential in being able to stave it off. But while preparation is crucial, so is knowing how to deal with those last-minute financial problems. Some business owners take the unsecured loan option route and other forms of financial assistance to get them through such times.
What to look out for
It is important that business owners are aware of what is going on around them in order to avoid financial failure. That means keeping an eye on the news; are there strikes or other forms of disruption that might affect the supply chain? What’s going on with customers; are they having financial challenges of their own? Business owners must use discretion as well as support in order to keep their heads above water and maintain cash flow at an acceptable level.
A good rule of thumb is to take note of any financial problems the company has experienced in the past, what signalled those problems and how were they resolved. By doing so, when and if a similar problem should arise, there is a record and possibly an immediate solution. Additionally, business owners should imagine ‘what if’ scenarios that might affect the company’s finances. Things like natural disasters, product sabotage and other scenarios may adversely affect a company’s cash flow. Remember, preparation is essential.
How to prevent cash flow problems
The best way to prevent a financial crisis is to never be short of cash. While no single business owner is a miracle worker, there are some steps that can be taken to help avert cash flow problems. Keeping a close eye on sales is a good way to identify when a cash flow problem might occur and using cash flow forecasts to identify future fluctuations might help prevent financial disaster. This, in tandem with regularly reviewing the budget and staying on top of operating costs is essential. If a loan becomes necessary, business owners might need to consider one to cover short-term cash flow problems.
Many small businesses fail because the owner did not see a cash flow problem in time, a situation that should be avoided at all costs. Prevention may be easier than many business owners might think. Maintaining a six months cash flow forecast is a good way to help manage the business and identify when possible shortfalls are likely to occur. Remember, cash flow problems do not just happen by accident, they can almost always be predicted several months in advance.