Every business requires regular cash flow in order to operate successfully. Unfortunately, however, poor cash management is a serious and all-too-common problem among business owners. Thankfully, though, it is one that can be remedied. The key is just to know the warning signs of poor cash management.
Once you are aware of those signs, you can be on the lookout for them in your own business. And, should you notice them, you can take immediate action to rectify the problem.
Warning Sign #1: You Have a Lot of Unpaid Invoices
First things first, take a look at the invoices you have that are awaiting payment. If there’s a lot of them, especially if many of them are already past-due, chances are that you’re not managing your cash and cash flow as well as you should.
Too many unpaid invoices is often a sign that you need to go after customers for payment more aggressively and that you may need to make your payment terms more clear and streamlined for customers.
Warning Sign #2: You’re Desperate for Cash
A business that is utilizing proper cash management strategies will very rarely, if ever, be so strapped for cash that it resorts to desperate measures.
Thankfully, there are options available for these types of situations, such as auto title loans, which can help you to get cash quickly.
And, while there’s certainly nothing wrong with relying on such measures during difficult times, such as a lull in sales, having to use such methods too frequently likely means that you need to take a closer look at how you’re managing your money.
Warning Sign #3: You’re Often Surprised by Your Financial State
When you’re running low on money or even when you’re doing well, does it come as a surprise to you? Do you often find yourself shocked, either in a good way or a bad way, about your month-to-month financial state?
If so, that’s a bad sign in terms of your cash management. Proper cash management means being on top of your finances at all times. You should know how your business is faring at any given moment and, even more importantly, this information should influence your day-to-day business decisions.
If you’re just making decisions on a whim, don’t have a clear plan, and are never really sure how “up” or “down” your business is, you need to get a much clearer, closer grasp on these matters if your business is going to have success.
Warning Sign #4: You’re Offering Too Many Discounts
Often, when businesses are struggling and aren’t making the sales they want, they will try to offer discounts or other incentives to draw in clients and, hopefully, get back on track.
While this can sometimes work, doing it too often could dig your business deeper into the hole. After all, if you discount an item, you have to sell more of it to make a nice profit. Sometimes, that strategy can work in your favor, but if you’re just using it haphazardly and aren’t carefully tracking whether it’s working for or against you, this is often a sign of desperation. It may mean you just want to bring in some money, any money without really thinking about the long-term effects.
Always carefully evaluate any changes to your business strategy, especially if they’re indicative of a pattern of behavior. If things start trending downward, make immediate changes. And, even if they’re trending upward, you still need to keep a watchful eye on your operations.
The Bottom Line
If you’re fortunate enough to have a business that doesn’t exhibit these warning signs, keep up the good work! And, be even more proactive and careful about keeping things moving in a positive direction.
On the other hand, if your business is in danger, in these or other ways, it’s time to up your accounting game. Whether that means hiring a professional team or just getting better and more conscientious at handling your finances yourself, the fact of the matter is that something needs to be done. Never just leave your business’ status up to chance. Ultimately, that’s the worst thing you can do