To improve your business finances, it’s good to be aware of the problems that can cause financial issues. Financial crises will rarely happen overnight, and instead, hints are dropped long before they explode.
Ignoring minor financial red flags is the quickest way for your business to go under. Recognizing these signs early on allows you to pivot and rescue the business before it’s too late.
1. You Are Constantly Experiencing “Dry Spells”
Regular cash flow shortages will mean your revenue model or collection system is broken. If you’re struggling to make payroll or pay suppliers on time despite booking steady sales, then this needs addressing fast.
You don’t want to rely on short-term credit, overdrafts or personal funds in order to get through the month. Dry spells are common for all businesses, with profitable businesses still failing due to poor cash timing.
Instead, you want to address where and why these cash flow shortages are occurring and how you can fix the problem rather than ignoring it and letting it get worse.
2. Accounts Receivable Are Growing Faster Than Revenue
Money on paper is typically useless if it’s trapped with clients who aren’t paying their invoices on time. While some clients are routine on-time payers, many may need additional prompting to pay up.
The reasons why that’s happening might be due to customers taking longer to pay or the collection terms you’ve set being too relaxed. Spending valuable hours chasing late payments is not the best use of your time. In effect, you’re losing opportunities to generate new sales.
High sales figures will often hide severe cash flow problems if invoices begin to pile up.
3. You Avoid Looking at Your Bank Balance
Financial anxiety often leads to avoidance, and that can be a major warning sign that you want to fix the problem.
Delaying bookkeeping duties or ignoring monthly profit and loss systems isn’t something you should be encouraging. Emotionally, you don’t want to make business decisions based on gut feelings. Instead, you should be looking at the real-time numbers.
You want to be mindful of your bank balance rather than embracing the attitude of ‘ignorance is bliss’. It’s good to look at bank balance accounting services to help track and verify what’s in your bank.
4. Profit Margins Are Shrinking Despite Rising Sales
Selling more goods and services is often meaningless if your operations costs are eating up all the profits.
Inflation and rising supplier costs can result in creeping overheads eroding your bottom line margins. It’s also important to raise your prices in order to match increased business expenses.
You’re working harder and taking on more risk for less reward, so you want to streamline the goods and services to bestsellers only.
5. You Do Not Know Your Break-Even Point
Operating without knowing your baseline can result in dangerous guesswork. An inability to state the exact revenue amount needed each month just for the fixed costs is a problem you want to resolve immediately.
If you’re pricing without calculating labor, materials or overheads, then you’re more likely to make a loss – and a big one at that.
You want to have a clear, break-even metric to accurately budget and scale the business.
Tackle Your Business Finances Problems Productively
Spotting financial trouble is an early sign of a proactive leader, rather than a failing business. The sooner you can resolve these financial problems, the better.
