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Top 10 warning signs

Spot the warning signs: Top 10 warning signs of a major cash flow crisis

Businesses don’t become insolvent overnight. But the realisation that there is a problem, and its acceptance by the management, can be slow in coming.

The strongest sign that your business has a major cash flow problem is when something happens which stops you from trading. But there are many smaller signs before that which, if read correctly, could allow you to spot the issue and take steps to fix it.

Here are ten indicators that cash flow troubles are looming.

1. You don’t know how you’ll get through the month end

Payroll is usually the largest drain on your cash flow. If it’s also a regular worry, you should take notice.

There may be a sense of satisfaction in somehow scraping together the cash each month to ensure your staff are paid on time. But chances are that one month you won’t be able to do it, alerting your employees to a major problem with your finances.

2. You’re always near the overdraft limit

Or worse, you’re often talking to the bank about extending it. To be fair, if that’s happening, they’ll already be asking questions about how viable your firm is.

An overdraft is a useful and flexible source of funding. But if you’re consistently close to the limit, it is a strong indication that your cash flow is being stretched to breaking point.

3. You’re regularly delaying payments to creditors

If your business was running smoothly, and profitably, your cash flow would be reasonably predictable. There should not be a need for constantly holding back payments because you don’t have money in the bank.

4. You don’t know how much you’re owed

Excellent credit control is essential to efficient cash flow management. If you don’t manage your debtors, you can be sure they’ll take longer to pay.

5. You’re losing valuable time to fixing cash flow problems

You didn’t get involved in a business to spend a lot of your time fretting about where the cash would come from to pay the bills. If that’s what you are doing, it shows that cash flow is controlling you, when it should be the other way around.

6. Creditors keep calling wanting payment

That creditors are often phoning to chase money is one thing, but if it’s become such a problem that you’re not answering the phone, it’s got very serious.

You can’t afford to ignore their calls, unless you want to run the risk of suddenly finding notice of a winding-up petition in the post.

7. You’re borrowing money from one place to pay someone else

This is a sure sign of impending trouble, particularly if you can’t see an obvious way out of the predicament. Constantly juggling your debts is only postponing the inevitable; without a fresh injection of working capital, they’ll eventually catch up with you.

8. You keep putting money into the business

One way to solve a cash flow problem is to put money into the business. Unfortunately, if the business itself is flawed, this won’t solve the problem.

If you’re continually topping up the firm’s cash from your own pocket, eventually your own reserves will run dry.

9. You’re always hoping the next deal with save you

While a successful business depends on optimism and enthusiasm, these alone are not enough. If that solution to your cash flow problems has been ‘just around the corner’ for a good while, there’s a good chance that it’s not really there at all.

10. The business feels out of control

If you no longer feel that you’re in charge of the business, it’s time to step back and rationally assess the situation. You may need help from a professional, who can offer an objective perspective on what’s really happening, and advise you on whether, and how, you can recover the situation.