You owe more than you earn
Unpaid debts impact your cash flow. It’s one of the biggest risks your business can face. If you have little or no money coming in, you can’t pay your suppliers without going into debt or using up cash reserves.
Sometimes business can be booming and you still have no money in the bank. The answer is to focus on getting paid in full and on time.
Remember that relying on a single client is a potential risk for small businesses, especially if they don’t pay on time. This is quite normal for start-ups but could be a warning sign for more established businesses.
You’re not paying your debts
The flip side of not getting paid on time is you don’t have enough in the bank to pay your own bills. It’s another sign you need an accurate and up-to-date cash flow forecast.
If you don’t pay your suppliers on time and in full, they may stop supplying you. This is a risk to your business.
Here are some tips on how to pay your bills on time:
- Update and monitor your cash flow forecast – this means you’ll know when to expect regular bills.
- Put money aside solely for paying bills – put it in a separate account that you can’t easily access day to day.
- Talk to the people you owe money to – if you explain why you’re short of cash, they may agree to delay or stagger your payments.
Your costs are higher than your income
The longer your income falls below your costs, the harder it’ll be to get into profit. If your business slows down at the same time each year, factor this seasonal downturn into your cash flow forecast.
Spotting a general dip in the economy or your sector is harder to do. An accountant can help you improve your financial forecasting.
You’re not on top of your finances
If you don’t know how much you need to sell to meet your costs and make a profit, it’s hard to tell when you might run out of money.
Talk to an advisor or your accountant about:
- simple ways to keep track of money owed by you and to you
- reviewing your prices to make sure they cover all your costs.
Cash flow forecasts also calculate your outgoings, so you know when you’ll have money to pay your bills. Get your accountant to help you understand your long-term cash flow.
Other warning signs
Other signs to look out for in your day-to-day business are:
- less or no pay for yourself
- no pay rises for your employees
- high staff turnover or no new staff
- low morale
- projects delayed or cancelled
- losing your passion for the business.
If any of these apply to you, talk to an advisor who specialises in turning businesses around.
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