The majority of small business failures are actually a result of cash flow and not profit problems. There are many examples of small business that sold so much so fast that they could not pay their bills. Primarily because they were not paid quickly enough from their customers but now have to pay more bills to their suppliers to cover their newly increased sales.
To you, this may sound obvious. On the other hand, you might be like many others who are surprised that one of the biggest dangers in business is ‘growing faster than the business can afford’.
To me the only surprise is how many business owners do not plan for their cash flow throughout the year. Often they don’t have a basic cash flow forecast, let alone the ability to model potential changes in their businesses.
For example, can you model the effect on your cash flow of:
- A change in your turnover (even a slight one)
- An increase or decrease in your prices
- Changes in inventory levels and work in progress
- Taking on or letting people go
- Changes in your receivables or your payables
- Reducing your overheads
- Increasing your borrowings
Do you just carry out changes and assume or hope that it will be beneficial?
Do you just try and increase your sales and hope that this will be good for business?
Whilst an increase in sales is normally good for business, it’s often the cause a myriad of other problems which impact cash flow.
It is always better to model the changes before you carry them out to see what the impact will be on your business and, indeed, your life.
Conclusion: The good news is that, in order to dramatically improve the profits and cash flow in a business, it often only requires a few tweaks and not a major overhaul.
Has this article got you thinking about your business and how you want to grab the reins and drive it forward but you struggle to find the time or feel that you lack the skills or knowledge to do so?
Are you looking at your screen wondering how or if Good2Great could possibly help you to build a better future for you and your company?
If so, why not check out free ways to learn more either at a seminar or in a free one-to-one business health check.
OR – perhaps you’re still at the start of your business journey – check out the Business Start Up Bootcamps