Warning signs of trouble ahead

Unsettled debts can significantly affect your cash flow, posing as one of the greatest threats to your business. Without adequate funds coming in, paying your suppliers is impossible without borrowing or exhausting your cash reserves.

Even if your business is thriving, you may still face financial constraints due to delayed payments. The solution is to prioritise receiving complete and timely payments.

One approach to mitigate this risk is to create a cash flow projection for all your expenses and revenues. This way, you can anticipate shortfalls and take measures to minimise the impact on your finances.

Tips on cash flow forecasting

Dependence on a single client poses a potential risk for small businesses, especially if the client fails to make timely payments. While it may be common for start-ups, it could be considered one of the warning signs for more established businesses.

Ensuring complete and timely payments is critical for maintaining healthy cash flow. To achieve this, consider the following tips:

• Keep up good relationships with customers. It creates a comfortable environment for discussing any unpaid bills.
• Chase debts promptly. The longer you delay, the harder it becomes to collect payment.
• Have a process for chasing debts. Sending a follow-up email once the invoice becomes overdue. If the payment remains outstanding after three days, consider contacting the customer directly.
• Automate invoicing. It helps to avoid errors or missed invoices. Ensure your customers receive invoices promptly, as delayed invoicing may result in delayed payments.

More tips on getting paid

Failing to receive payments on time results in insufficient funds to pay your own bills. This serves as another indication that you require an accurate and current cash flow projection.

Failing to make full and timely payments to your suppliers poses a significant threat to your business as they may cease supplying you. To mitigate this risk, consider the following tips:

• Update and monitor your cash flow forecast to anticipate your regular bills.
• Set aside funds solely for paying bills, preferably in a separate account that is not easily accessible for daily transactions.
• Initiate communication with the creditors you owe money to. By explaining the reasons behind your cash shortfall, they may agree to postpone or stagger your payments.

The longer your revenue falls below your expenses, the more challenging it becomes to attain profitability.

If your business experiences a seasonal decline, account for this period in your cash flow projection. Detecting an overall decline in the economy or your industry is more challenging.

Enlisting the help of an accountant can enhance your financial forecasting capabilities.

Determining the volume of your sales necessary to cover your costs and generate profit is crucial.

Without this information, it’s challenging to predict when you may face cash flow issues. Consult an advisor or your accountant to learn about uncomplicated ways to track your payables and receivables. Seeking assistance to review your pricing strategy is also beneficial. Are your prices adequate to cover all your expenses?

Cash flow forecasts provide insights into your expected expenditures and when you will have adequate funds to pay your bills. Engage your accountant to help you understand your long-term cash flow projection.

Tips and advice on business finance

What to do if your business is operating at a loss

There are other indicators to watch out for in your day-to-day business, including:

• Reduced or no remuneration for yourself
• Absence of salary increases for your employees
• High staff turnover or no new hiring
• Low morale amongst your team
• Delayed or cancelled projects
• Loss of passion for your business

If any of these signs are present, consider seeking assistance from an advisor who specialises in business turnaround strategies.