1. Unforeseen expenses
Underperforming revenue streams can lead to sudden and steep drops in your business’s cash flows even at times when you’re managing your costs exceptionally well. This can happen through any expense, from renovations or training programs to supplier discounts; such expenditures have no place in an operational budget without proper preparation.
2. Poor cash flow forecasting
Business owners must always be vigilant in monitoring cash flow. Too many minor errors in assessing the actual state of your business’s financial health can add up to real problems down the line.
3. Declining sales
Lower-than-projected sales can profoundly impact a cash flow, especially if you either don’t have or choose not to use credit lines during leaner times.
4. Lack of a plan for building up cash reserves
You may be able to avoid catastrophic cash flow issues by maintaining some cushion built up through profits or access to private loans available to lend money against property for short-term relief.
5. An unprofitable product line or service line in the mix with profitable ones
When you’re building a profitable company, you can’t afford to sink too much time or capital into projects that may not work out.
6. Operating on too tight a margin to make ends meet
Not factoring in additional expenses in your monthly budget is one of the easiest ways to find yourself in trouble with cash flow if circumstances change unexpectedly.
7. Managing payables poorly so that they are not paid on time and creating late charges
The best way to avoid dealing with late charge issues is to pay all payments on time especially invoices from suppliers and contractors, customers even bills from vendors like advertising firms and credit cards. It is never a good idea to pay invoices late, even if you have the money.
8. Too much inventory
Having too much inventory in stock can be a significant problem for your business. If you do have excess inventory, spend some time finding ways to get rid of it. If you cannot sell the excess inventory at a reasonable price, then liquidate the items and use the money to pay off your debt or invest in something else that will help you increase the revenue stream.