Problems to be aware of with small businesses

There are many problems that small businesses face on a daily basis. One of the biggest is inadequate cash flow. Lack of capital is one of the main reasons businesses fail. If there is no cash available to pay bills when they come due or purchase product you have serious trouble. It is essential as a small business owner that you keep a close eye on your cash flow. Early detection of cash flow problems will give you time to make the necessary changes so that disaster can be averted. At the least, you should be able to know at all times how much cash you have on hand and what your business needs to operate. An in depth cash flow analysis is not needed every month, but you can stay on top of things and avoid potential problems by comparing your sales with your expenses. If your expenses are higher than your sales, you may have a problem. Other cash flow warning signs include: ‘ Bank account balances drop below normal averages. A decrease does not necessarily mean you are in trouble. It is possible you have purchased new equipment or made an unusual purchase. If there is a decline for an unexplained reason, it may indicate a cash flow problem. ‘ Inventory is building up. If you find items sitting on your shelves for an extended period of time you are facing an issue of reduced sales, which translates into less revenue, less cash. ‘ Bills are being paid late. Many bills you receive are due on receipt or within 10-30 days. If you find you are paying your bills 60- 90 days past its due date you already know there is a serious cash flow problem. ‘Major purchases are being postponed. Your business needs a new piece of equipment, but you can’t afford to buy it now because money is too tight. ‘ Banks are asking for financial statements. If your banker is asking for these statements cash flow is definitely an issue. New small businesses often experience cash flow problems, but it doesn’t mean you are doomed. Knowing there is a problem lets you take measures to avoid a crisis. There are two main ways to improve cash flow: increase the amount of cash that’s coming in, and decrease the amount of cash that’s going out. It’s that simple. If you are experiencing cash flow problems in your business, the SBDC has the expertise to help you by doing a cash flow analysis. Call us for free, confidential one-on-one advising. ‘Business Tips’ was written by Mr. Paul Howard, Business Development Specialist and Certified Business Advisor II of Angelo State University’s Small Business Development Center. For more information on the topic of this article or the services of the ASU ‘ SBDC, contact him at Paul.Howard@angelo.edu.

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