How will bad cash flow affect your business?

While no business will ever aim to have a negative cashflow, at some point during a business’s life span, it should be expected. Starting a brand-new business should see you in the red at some point as start-up costs inevitable set you back, but it shouldn’t be long before your back in credit. Sometimes bad cash flow can hit when you least expect it, a surprise bill, or maybe the loss of a big client. But if you see your business on a pro-longed period of ash flow trouble, it usually suggests there are much bigger problems within the business.

So what are the common cash flow problems a business has?

Decline in supplier relationships

Suppliers will often be the first to feel the bite of bad cash flow. If there isn’t enough money coming into the business, paying your regular supplier bills becomes extremely difficult. Even if payments are slightly delayed, it can put a big strain on the relationship, supplier relationships are built on trust and reliability. If things turn sour with your supplier, you could lose all of the key raw materials you need. It may even come to a point with suppliers, where if they are chasing money they send bailiffs or debt collectors, all of which will have a hugely negative effect on production. In this situation it’s vital to know where you stand and what your rights are as the supplier tries to reclaim their debt.

If cash flow begins to drastically effect a supplier relationship. The best thing you can do is explain your situation and try to work out a better arrangement which gives you more time. Suppliers always want their clients to do well.

Employee’s become disgruntled

If cash flow gets to a really negative point, paying staff could become a big problem. The workforce is the cog that keeps any business going and is arguably the most important aspect of any business. If cash flow is affecting the way you pay staff, which could even see them paid late will have a massive impact on their morale. Just as a business depends on staff, staff depend on the business.

If you’re struggling to pay staff, just as with suppliers, the best thing you can do is be honest with them. Explain the situation and ask for patience, don’t try and pull the wool over their eyes.

Growth slows – Or stops

Most businesses will always be finding the next opportunity to grow. It is what drives a lot of owners forward and gives people the opportunity to reap the rewards. But while there are plenty of benefits, growing too fast, or not being prepared properly for growth will often set you back further. Expansion should not be taken lightly and growing too fast can see your cash flow take a major hit.

Overspending on supplies, staff, marketing and strategy without having enough long-term revenue to cover the expenses is a common mistake made by owners. Without being in a stable position cash flow wise, you are essentially growing unsustainably.

Business deterioration

If cash flow becomes a bigger problem, the likelihood is that all of the above problems will come into effect at some point. These kinds of problems will no doubt take your business into a route of deterioration and potentially even closure. If cash flow is a problem you choose to deliberately neglect, and you find the business in debt, it could have some very bad repercussions for owners, as during the closure of a business the liquidator will always look into the how the business has been run.

In summary

Cash flow is a common problem that can be solved. Often it is caused by a case of poor business planning, but even when you are in trouble, by planning efficiently and strategizing how you intake money will give you the best possible start when it comes to cashflow. There are also financial packages such as invoice finance, asset finance, hire purchase and bridging loans designed to help tackle the issue at its route and keep your business going. However, ultimately if you don’t try and resolve cash flow issues, they will inevitably catch up with you.