In an economy where the stakes are increasingly high and cash progressively scarce, business owners must pro-actively manage the balance sheet and income statement or risk falling victim to the five silent killers of cash flow.
Did you know that a majority of businesses that file bankruptcy reported a net profit, yet had negative cash flow? Often the warning signs that a company is in trouble go unnoticed until it is too late. A business can improve their liquidity and create long-term viability by looking closely at the following potential trouble spots.
Inventory Management. Driven by revenue growth, business owners can easily lose sight of the gradual increases made in their inventory levels. Whether rapid or steady, inventory creep can begin to impair a company’s cash position. Due to seasonality and sales, many business owners can fall into the trap of purchasing too much inventory because of a great deal. Some believe the myth that “sales cure everything” but the truth is there are many factors to consider. For example, the discount has to overcome the fact that you may have to carry the inventory for a longer amount of time.
Solution: Realign financials with industry standards, or move to a real-time method of inventory management to greatly improve the working capital of a business. Finding the right balance between inventory and sales can drastically increase a business’ available cash.