It’s dubbed the silent killer – and this is enough for some businesses to really start to worry. In short, cashflow problems are a serious issue and are one of the main reasons why so many companies struggle.
According to accountants in London, one of the big reasons behind these issues is that cashflow is just misunderstood. It’s something that’s not the simplest topic in the first place, but there is a lot of misinformation doing the rounds which just keeps on clouding things. As a result, today’s post will analyse some of these myths to hopefully protect your business.
Myth #1 – You can never have too much cash in the bank
This is an interesting one, as in some respects having plenty of cash in the bank is an easy way to alleviate your cashflow concerns. After all, if you do have cash readily available, you can ultimately pay for your suppliers.
However, treat this issue with caution. While it will allow you to avoid a cash flow crisis, it does mean that your business isn’t being as effective as it should be. After all, money in the bank earns less than the rate of inflation and for most businesses, this just isn’t sufficient.
Myth #2 – It’s all about your income statement
If you believe this next myth, you are set for a rude awakening when it comes to cash flow. Unfortunately, your income statement might be blossoming, but this doesn’t necessarily relate to your cash flow situation.
The general rule is that until cash is in the bank, you are at risk of suffering from cash flow problems. Even when you have sent your invoices over, this isn’t the time to count your chickens. Customers will still push payment terms to the limit, and this is where cash flow can come and bite you.
Myth #3 – Cashflow doesn’t impact day-to-day activities
For some people, cashflow is a problem that impacts a business from quite a senior level. In other words, for day-to-day activities, it’s not something that really plays a part.
As it turns out, this couldn’t be further away from the truth. Cashflow is the lifeblood of a business and if your company is struggling, it will be noticeable. You will struggle to negotiate with suppliers, for the simple reason that you aren’t able to pay up front for goods. This is just the tip of the iceberg and if you dig deeper, a lot of your employees will start to feel the pinch when it comes to the subject..
Myth #4 – A negative cashflow business is the end of the road
Fortunately, this doesn’t always have to occur. Sure, it’s a big sign that your company isn’t in an ideal state of health, but it’s not the end of the line.
While you will need cash pretty soon just to cover basic operations, in the short-term you can usually negotiate payment terms with suppliers. This can sometimes buy you some time to get back onto your feet.