Financial liquidity problems can happen not only to a company, but also to an individual. If you want to avoid cash flow problems, reading this guide will be a very wise decision. Since both entrepreneurs and individuals can be in trouble, our guide will provide tips for both groups of readers.
1. Delayed revenues
That’s how do cash flow problems usually start. Delaying payments is every businessman's nightmare. If you sell a product or service, you have previously incurred some cost. Perhaps it was your time, or maybe it was money. Every day you wait for money from a customer means a loss for you, because you can't use those funds.
If you are a private individual, delays in payments can also affect you. Many employers have problems with timely payment of salaries to their employees.
The solution to this situation is not simple. If you are an entrepreneur, you can use factoring or introduce penalties for late payments. When you are an employee, it may be time to change your job.
2. Lack of profitability
Although the main objective of any company should be to earn money, a surprisingly large number of them make losses. If a company is not making money for itself, cash flow problems are more than certain. Lack of profits means that debts start to appear, the company's management does not work effectively and investors start to get nervous.
Negative real income can also occur for people who do not run their own business. If your commute costs you a fortune, your living expenses are greater than your salary and on top of that your job takes up a lot of your time, your work is realistically making you a loss.
In this case, the answer will be to increase your income or reduce your expenses. If you run a business, it's time to consider what services or products are the least profitable and whether they can be replaced with something that will bring you more money. If you are an employee, do what you can to get a raise, or try to make money using Paidwork.
3. Irresponsible borrowing
Many companies have trouble making investments, even if they are making a lot of money and cash flow statements are optimistic. Why? Because they get into debt irresponsibly. If the loan amount is too large and the company could borrow less money, the payments would be lower and would be a smaller part of the monthly expenses. This is especially relevant in countries where interest rates are being raised. Too little credit also spells trouble, as unexpected expenses may arise, due to natural disasters, for example.
16If you are an individual, consumer debts will be a bigger threat. Even if you have enough money at the moment to pay all the installments, what about the situation when you lose your job? Will you then also be able to afford all the loans you have taken out?
If you're running a business, consult specialists about your decisions. If you decide on an expensive investment, be sure that the loan you decide to take will be suitable. As an individual, you should simply beware of installment purchases.
Taxes are a nightmare for everyone. Some companies pay them monthly, others quarterly or annually. And while they are common, because virtually everyone pays them, taxes cause a huge part of business cash flow problems and continue to come as a surprise to many people.
For individuals, taxes are not as common a cause of cash flow problems, but you should still keep an eye on all payment deadlines.
If you're running a business, it's essential to create a reserve of money for taxes. Many companies use tax advisors and lawyers to handle this exclusively and allow the company's management to focus on making money.
5.Wrong pricing policy
We've mentioned before that a lot of companies make losses because they just earn too little. One of the reasons is the improper pricing of the goods and services they sell. This happens for a variety of reasons. Perhaps the owners think that a low price allows them to maintain good sales, perhaps they don't know what's going on in the market. While it may shock you, it is very rare for companies to offer prices that are too high. Pricing too low makes a company's cash flow huge and profits small. Why should your company turn over large sums of money if it gains nothing from it? Capital is never for free.
If you are an employee, perhaps you could earn more. Some people undervalue their skills and are willing to work for rates lower than commonly accepted.
The solution we can offer you may seem strange, but it is very effective. Simply ask your competition for prices! You can pass yourself off as a potential employer or client. The important thing is to simply find out how much your competition is getting. You should check your prices at regular intervals. With current inflation, 3 months seems to be a reasonable minimum. Also create a pricing strategy to help you grow your business.
6. Using inappropriate equipment
There are two sides to the coin. Outdated and inefficient equipment makes your company's products unattractive, and the cost of using machinery is often unexpectedly high, for example, due to electricity consumption. On the other hand, if you decide to invest huge amounts of money in tools that you don't need, you will simply freeze cash in unnecessary items.
For individuals, we will focus mainly on skills. It is worthwhile to further educate yourself, because many skills are of great value on the job market, but there are degrees and courses that are simply useless.
As an entrepreneur, you should consider carefully any investment you make. Pay attention to your competitors. Do their companies need expensive equipment to function? If not, you probably don't need them either. Business cash flow problems are often the result of unnecessary emotion and excitement instead of sensible data analysis.
7. No plan
That's another way how do cash flow problems usually start. Even large companies don't always have a plan for growth, and their owners constantly blunder and take unnecessary risks. If you're running your business and you don't have a clear strategy for your business, it's essential to change that. Large turnover and small profits, constantly balancing on the edge of bankruptcy or inadequate pricing make many companies with great potential lose all their assets.
You should also have a plan. If you are still learning and are a student, try to clearly define what you want to do in a few years, how to get there and what you can do along the way.
If you have major liquidity problems, it's time to develop a recovery plan! Start by assessing your situation and defining your goal, and then decide what measures you need to use. Get to work!