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8 Ways Poor Cash Flow Is Affecting Your Business

Updated on September 19, 2013

Poor cash flow can affect much more than the financial performance of your business. The non-financial costs of poor cash flow can have just as negative an impact on your business as the financial costs. Here are 8 ways poor cash flow is affecting your business.

  1. Increased interest and bank charges - When having to source funding externally from lending institutions extra costs will be involved. These extra costs will affect your profit and cash flow. Bank fees and interest can accumulate very quickly if you go outside their credit terms. Ensure you have the best overdraft and loan for your business.
  2. Missed opportunities - Poor cash flow may lead to you having to pass up on great opportunities to grow your business, e.g. you may not be able to invest in the machine that will make production more efficient or will have to pass on a supplier's special.
  3. Poor relationships with suppliers - Being constantly late with payments to your suppliers may cause tension in your relationship with them. This may lead to poor service or losing them as a supplier altogether. Always pay on the day the bill is due.
  4. Poor relationships with customers - Contacting customers for overdue invoices when you are stressed may lead to you saying things that you wished you didn't. Ensure you have a debtor collection policy and that it is followed.
  5. Employee morale - The culture of the business comes from the management. If the manager is stressed and worried this will reflect in the staff morale - especially if they are worried about their long term future.
  6. Stress - The stress from the lack of cash can influence all areas of your life and business. Stress affects three areas of your life: physical, mental and behavioral. If stress isn't managed effectively it can have significant impact on a person's health.
  7. Solvency - The extreme cost of lack of cash flow is that you go out of business.
  8. Restricted Growth - Your business can not grow if you don't have the resources to assist that growth. There is no point increasing sales if you don't have the personnel or resources to fulfill the extra orders.

These effects of poor cash flow on your business should be of concern to all businesses who are having difficulties with cash flow. However one of the most important steps to fixing a problem is being aware it exists. If cash flow is an issue for your business, we recommend seeking professional advice from our accountant or business adviser before the situation gets worse. We invite you to visit the Beyond the Numbers Business Advisors website for details of our services.

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