Identify potential cash flow problems
September 2008
Identifying potential cash flow problems before they happen can help to prevent disasters in business.
Many people draw up forecasts and plans but then fail to study them properly and look out for any danger signs, or compare the forecast with actual figures as they become available. The earlier you identify potential problems, the sooner you can take action to avoid them.
Keep business forecasts up to date
A budget or business plan can soon become out of date. However, they should not be neglected - it's a good idea to keep your eye on the figures at all times. It will help your business if you:
- record actual figures
- compare the actual figures with the budget or plan
- record variances
- investigate reasons for variances
- see if the budget or plan should be updated
Be aware of changing market conditions
You need to be sensitive to changes outside the business. Be alert. Look at developments that affect your business. Respond quickly and change your plans if necessary. The following are some of the things to watch out for:
- interest rates - they have an influence on the general trading climate and are not just a matter of direct costs
- what your competitors are doing and how they will respond to what you do
- the entry of a new competitor into the market place
- new technologies and innovations that could change the market and the demand for your product or service.
All businesses will experience change to their general sales environment at some point. These changes may affect the economy as a whole, or they may not. The important thing is to be alert to possible changes and to amend forecasts and plans to compensate for them in order to avoid potential cash flow problems.
Signs of customers in trouble
You won't always know in advance if any customers are in financial trouble, but bad debts and slow-paying customers can cause big problems for your business, so look out for the signs. A change for the worse in the payments pattern is often the most important sign.
- Mistakes on cheques - May be an accident but might have been done deliberately to buy time
- Numerous queries - too many requests for copy invoices
- Cheque in the post - perhaps the most common excuse of all and a tried and tested delaying tactic
- Rumours - it always pays to keep your ear to the ground
- They refuse to speak to you
- They never ring back
- They are always in a meeting
- They refer the problem to someone else
Return to category: Newsletter: Brilliant News - September 2008