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When a business is experiencing problems,it is very important to drill down to the root cause ,this provides the important information required to take adequate decisions.
Cash flow (find the definition of cash flow here https://biznessvirgins.blogspot.com.ng/2016/06/understand-basic-business-terms-3.html) is one of the important elements in business,when the cash flow within a business in slow,business becomes challenging . It is good to always make sure you know the amount of cash available within your business. When paying bills within a business becomes difficult, the business might be having cash flow issues and you might want to check and correct the following aspects of your business :
– Business models give structure and guide how businesses operate to make money ,some business models are flawed and this can mean the business would generate insufficient revenue.In such situations , changes must be made to the current model to improve the sales and financial condition of the business.(to write your business model use this link – https://biznessvirgins.blogspot.com.ng/2016/06/define-your-business-5-customer.html)
-Investing more in the production capacity than the business requires to generate revenue per time,this usually leads to waste of cash
– Not paying attention to expenses can be suicidal for a business,it is very essential to keep a close watch on money that leaves a business in relation to the amount of money coming in. At times, a lot of revenue might be coming into a business but its important to make sure the amount of money going out is sustainable,make sure your expenses in business are never too high in relation to your sales volume.
– Losses and low profits can lead a business to struggle with cash flow, healthy profit margins are important in business ; profit margins in business should adequately cover cost within the business as well as accommodate growth plans for the business.Some businesses apply low profit margins as a strategy to compete in the market place but if not checked this can backfire and result in cash flow problems for the business.
– Holding on to too much stock per time poses a high risk for every business as the stock can easily become obsolete leading to waste.
– Credit sales usually enables a business to generate more revenue but late payment of these debts will definitely affect the amount of working capital available within the business to carry out other profit generating transactions, this phenomenon is very common in B2B (business to business) transactions. Ineffective debt collection from debtors is a major cause of cash flow problems,businesses need to implement an effective debt collection system to create a healthy cash flow system.
– Expansions in business require funds, it is therefore very important expansions are planned so that there is still sufficient working capital left within the business to generate revenue and sustain the business.
– Predictable seasonal demands can cause cause cash flow problems ,it is however important that businesses make plans to accommodate them.
Feel free to send in challenges your business might going through to our business clinic , send mail to firstname.lastname@example.org .make the subject of the mail Business clinic.