As a business owner, you will have so many amazing ideas to make your business the best business it can be. However, there is a significant issue that will get in the way of making all these great ideas come to life – money. And when you don’t plan and budget everything correctly, you run the very big and debilitating risk of running out of money. So when you are running out of money, how do you save your business?
Why is running out of money a potential risk for businesses?
There are many reasons why businesses can run out of cash. Here are a few of them:
1. Rapid Growth
It what every business owner wants – their business to grow. However, unless you have a pot of gold hidden somewhere, there is a downside of a booming business. With the growth of sales comes the inevitable rising cost of resources, materials, extended facilities, staff, equipment, and more. These fees will increase as your sales improve.
This means that while they are making sales, they are using up their entire cash supply, hence running out of money and struggling to keep operations running while they wait to receive their commission payments.
2. Lending restrictions
It may be easy for owners of small to medium businesses to run out of money because banks have made it increasingly difficult to take out a load or raise credit limits. This means that owners may find themselves running out of money as they struggle to be fulfil the lending criteria of their bank to borrow the funds that they need.
Some businesses find themselves booming during a particular time of the year and then are quite for the rest of the time. Some more common business examples are cold foods such as frozen yoghurt or ice cream stores smashing sales during the warmer seasons before quietening down during the colder months. In order to ensure that you are not running out of money when it is your ‘off season’, great budgeting skills are essential.
4. Expenses are not being monitored
A simple yet very effective way of avoiding running out of money is through monitoring your expenses. This way you can see if you are spending a bit more on marketing than usual, or are going over your budget for supplier prices. By constantly monitoring your expenses, you can really cut back of your funds and avoid spending more than you should.
What to do when you are running out of money
When you find yourself running out of money, it is easy to panic, but try not too just yet, there are still ways to get your business back up and running.
How serious is the problem?
First you need to work out just how bad this cash shortage is. Make a short projection on how you cash inflow and your cash outflow to gain an idea of where you are headed.
Can you cut back on expenses?
Looking at your spending, are there areas that you can cut back on, at least temporarily, while you get back on your feet? By making small changes to your business, you can save some money that can be really beneficial in the long run.
Is there a temporary solution?
If you are running out of money, you need to quickly find a short-term solution that you can quickly implement. After you have a temporary solution in place, then you can figure out a long-term solution.
You need to create a cash flow forecast so you can review all your expenses, including money coming in and money coming out. By developing a cash flow forecast, you can effectively plan your how and where you spend your money in conjunction with how much money you have coming in. If you constantly monitor your expenses, you will increase your chances of avoiding running out of money for your business, saving lots of stress and time.
If you would like a simple and easy way to manage your income and ensure that you are getting paid by your customers or members on time on a regular basis, then Ezypay direct debits is the billing solution for you. Ezypay comes with various functions that are designed to help increase cash flow, including real time reporting where you can check your exact financial position every time you log into your account. For more information, please contact one of our team members and they will get back to you shortly.
Here’s an idea (or 31) on how to increase your business cash flow. Download your FREE eBook now to learn these effective strategies.