Shockingly, 82% of businesses that fail, do so because of bad business cash flow. Walking the tightrope between cash in and cash out can be tricky for business owners to balance.
But what are the realistic impacts of a cash shortage on a business, and how can you help your clients to manage and avoid them?
What a cash shortage can do to a business
A cash shortage can cripple the daily activities of a business. This can cause disturbed sleeping patterns and increased stress levels, making it almost impossible for a business owner to see their way out.
Without sufficient cash in the business, it can be impossible to carry out daily trading activities that help to keep cash flow on track. This perpetuates the cycle of bad cash flow and businesses can quickly find themselves falling into the red.
How you can help your clients
Proactivity is essential to running a sustainable business. Encouraging clients to understand their current and future cash position can be done using a cash flow forecast, either built manually in a spreadsheet, using a template, or in cloud-based software.
Keeping on top of cash flow is essential to good business management, however you choose to do it.
Whilst a cash flow forecast can show you the journey of a business, it can’t automatically show you how to avoid any dips into the red, although scenario planning will help.
But how can cash flow forecasting allow you to help your clients with cash shortages?
With the additional insight provided by a cash flow forecast, your clients will be able to confidently make plans for the future, without worrying about making a disastrous wrong move.
With cash gaps spotted far in advance of them becoming a problem, you can help clients plan ahead to get funding in place, or cut spending, to avoid disaster.
When they plan ahead, your clients can secure better loan rates – through shopping around and negotiating better deals – and rest easy knowing that each decision has data to back it up.
Provide advice on funding
Providing details on business finance and alternative financial lenders can be invaluable to any struggling business owner. Timely advice on funding helps businesses to get the necessary cash in place before cash gaps occur.
Now, business owners have a variety of options when it comes to securing the right finance at the right time. With crowdfunding services, peer to peer lending and invoice financing becoming increasingly popular, businesses can get access to funding without carrying out, or commissioning, complicated eligibility checks.
Tighten up inflow and outflows
No one knows your client’s business better than your client. So working closely with them to tighten up their accounts payable and credit control functions is the first step towards ensuring they have the cash in place to avoid cash gaps.
Making a plan for effective payment of their accounts payable can strengthen the relationship your client has with their suppliers. This, in turn, can help them to secure discounted rates and more manageable repayment plans.
But understanding budgets is just as important for businesses that are strapped for cash. Helping business owners to understand their budgets, or to break them down incrementally, can be essential to helping them avoid cash gaps.
With an overview of their cash flow, and knowledge of their late payers, you can determine the best way to tighten up their credit control systems. Whether this means providing incentives, requiring deposits, or splitting the bill into more palatable chunks, it can all go a long way towards encouraging a healthier cash flow.
How Float can help
Cloud-based software like Float can encourage confidence by providing visual insight into the details of cash inflows and outflows of a business at any one point in time.
Because Float lives in the cloud it can be used collaboratively with your client. Automatically updated with invoices, bills, and actual transactions, you get a live view of your client’s cash position, with no number going unaccounted for.
Helping clients to understand the volatility of their cash flow can enable them to proactively plan against the threat of insolvency. With insight over the fluctuations that may push a business into the red, you can plan with your client to keep them in the black.
Advisory services have become a fundamental part of the new form of accountant/client relationship that has emerged over the past few years. It’s no longer enough to alert clients to the danger that lies ahead; providing timely and practical advice is essential to helping them avoid the perils of a cash shortage.
To find out exactly how Float can help you to advise your clients on what to do when a cash shortage is approaching, sign up for your free licence here!
7 Advantages of a Cash Flow Forecast
4 Ways to Help Your Clients with a Cash Surplus
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