Blog | Maximum Funding Solutions

Why Cash Flow Problem is the Biggest Threat to a Business

 

All businesses – small and big – know that cash is essential for its success. Cash is king, yet cash flow problems continue to pose huge obstacles for businesses.
Truth is most companies will experience cash flow problems at different stages of their business. But what exactly is cash flow? How can it possibly threaten the life of a business?
Cash flow involves the movement of cash in (inflow) and out (outflow) of a business. Inflow refers to cash received from customers, creditors, and lenders, while cash outflow involves the writing of checks for creditors, suppliers, and even for the payment of salaries. Cash flow can affect several areas of a business. Most businesses that may have enjoyed great profit following their startup have encountered obstacles and eventual failure due to a lack of good cash flow.

Why is cash flow your business’ biggest threat?

Overhead Costs
Overhead costs refer to expenses that are not directly tied to the sales of a specific product or service, but are important for the running of a business. Overhead costs include expenses such as telephone bills, rent, and utilities – cash is needed to take care of these outlays. If there is no cash at hand, your business may be forced into taking loans or making late payments.
In some cases, the overhead costs may spiral out of control relative to the revenue produced by the business. Whatever the case, lack of cash and high overhead costs can negatively impact a business. Late payments caused by lack of cash affects your credit rating over time, affecting your ability to secure loans and credit account privileges in future. In the same vein, high overhead costs can affect the cash flow of your business.

Hampered Growth
Even if you are able to meet up with the payment of your bills, restricted cash flow can affect the progress of your business in terms of investments. You may miss out on golden opportunities to acquire assets at fair price points, hire employees or consultants who are specialists in a specific field, pay for services utilized by your business, or even get reasonable discounts on bulk supplies. When the business growth is stymied, employee morale may be negatively affected – and this would likely not augur well with shareholders and potential investors.

Deficient Marketing Efforts
The marketing plan of a company is likely the first budget to experience a cut when cash is tight. This means there would be no funds to invest in advertisements that attract customers. To counter the effect of the downsized marketing plan, you may offer sales discounts in order to improve the situation of your business. While this can be said to be a smart move, how prospective customers perceive your brand’s value may be significantly affected.
Cash flow problems can seriously affect your business and prevent it from scaling up. It may even threaten your ability to remain in the business. At Maximum Funding Solutions, we adopt a tech-driven approach, combining our deep financial sector experience with cutting edge technology and high level of personalized service to ensure your business embraces a dynamic cash flow system for its growth and development.

 

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