4 Cashflow Solutions for a Business
Often people behind businesses are seen as faceless, greedy men in suits demanding more money for their luxurious lifestyle, but for most of the small to medium businesses I work with, those shareholders are directors who have invested a lot of time into growing their business, whilst only ever taking a modest salary, if anything at all. Some have even invested their life savings and forgone holidays for several years.
All business will suffer cashflow problems
These businesses and many others like them will at some time or another experience cashflow problems. There are various reasons why this may happen. Often it’s overstretching their savings on a project that is taking longer than expected to give a return or a supplier they rely on has increased their prices. On a more personal note, it could be because they need money to pay for a wedding, a new baby, or go on that long overdue holiday. In some instances, it’s due to not paying attention to their accounts and savings they should have put aside for tax have been spent and they are now facing pressure from HMRC to pay up.
Whatever the reason for cashflow problems, I am often asked “What can I do about it?” There is often pressure for that solution to be a quick fix as most cashflow problems are experienced in real time unless the business has an accountant who has foreseen this and is being proactive.
What options do businesses facing cashflow problems have?
There are lots to choose from but for the purposes of this blog we’ll focus on the 4 well-known solutions.
The popular quick fix solution is to increase price, however, this is usually only a solution for businesses who have little, or no, competition. The downside to this solution is a business who raises their prices is in danger of upsetting their regular customers. Very few customers are happy about paying more for something they get regularly despite being told its inflation or whatever other reason they are given. In fact, if anything, customers want the same service/ product for less!
Another option a business has to improve their cashflow is to sell more products or service more clients. This only works if their costs to produce the products or service the extra clients are minimal and they have a surplus of time. Many businesses I work with who have cashflow problems are pushed for time, so serving more clients is not an option. Furthermore, this solution can take a while to produce results.
Another popular solution is to reduce costs. This can work if the business is spending money on things it doesn’t need, and most businesses can certainly increase their cashflow by doing this, but depending on the cash shortfall it might need more drastic actions like redundancy. This, in my opinion, should be the last resort, it’s unpleasant for everyone, so look at reducing office space and overheads first. If the business is family run, I would also suggest looking at reducing personal expenditure too, in order to reduce the demand on the business profits.
This is usually the last solution considered and yet it’s likely the most effective. Many businesses are inefficient with their systems, time and processes. Depending on the type of business, it could be giving away freebies unwillingly (either through stealing, unpaid invoices, broken down machines or a lack of checks in the buying process). For example, many people have received the odd free train ride due to broken ticket machines at unmanned stations, and not enough ticket inspectors on the train or at the platform. Thus I would always suggest a business looks at their software, machinery and all other processes to examine any inefficiencies. I guarantee they will find at least one!
I hope this article helped. If you would like to read more helpful tips, I have a selection of books available on Amazon or you can sign up to my newsletter.
By Helen Monaghan
Accountant, Coach, and Author
© HM Finance Coaching Ltd