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Business That Are Prone To Cash Flow Problems

2017-08-10 11:45:00 | Legal Services
Cash Flow Problems
Managing a company’s cash flow is a very big challenge. There are many factors you need to keep in mind while managing the cash flow. Any kind of loan, purchase, deal, strategy affects the cash flow in one way or the other. It is so important that legal advisers are consulted. Proper strategies are planned out just to keep the cash flow in check. A company’s cash flow reflects many operations of the company. Cash flow problems arise when incoming money in a company is lower than the outgoing money. There are many reasons as to why cash flow problems arise. It can be due to over investment, losses, poor handling of receivables and payable, flawed business plan and so on. However, these reasons are most likely to arise in some specific types of business. These types of business which are prone to cash flow problems are mentioned below.
A small business or a startup is quite obviously the most prone to cash flow problems. It is because of the invisibility of the company and less experience of the owner. Not maintaining a cash flow budget from the starting or spending too much are some of the results which finally leads to cash flow problems. Also, startups are very prone to losses or low profits. It, therefore, results in an imbalance in the cash flow. Hence, it is quite common to see startups and small business suffering from cash flow problems. A proper forecast is required. Everything may seem jittery and flowery in the beginning which leads to ignorance. Ignoring smaller yet important aspects like credit and stocks can cause serious cash flow problems. Therefore, everything needs to be sorted and planned beforehand. Consulting legal solution providers and advisers is strongly recommended for startups. Basically, the experience is what a startup requires. Everything from planning to strategize to effective implementation will come along with it.
Also, other than startups there is few more business who are prone to cash flow problems. Other than business which has a flawed business plan and has communication problems, businesses that are expected to face cash flow problems are:
A business which is dependent on one or two customers only as their major income source: Customers are undoubtedly the main source of income for any company. However, depending upon one or two customers only can be a big issue. Reasons, like lagging behind the payments or leaving the company unexpectedly, can lead to an imbalance in the cash flow. An equal dependence on customers, having more major customers and strict collection schedule can help you under such circumstances. Other than that, don’t leave the smaller accounts under any circumstances because they too contribute to your cash flow. Also, they will save you from getting completely bashed if a major customer leaves you unexpectedly.
Business depending upon only one service or one product: There is so much competition in the market nowadays. Not to mention the increase in startups on a regular basis. There is no doubt that there are going to be many companies providing same services or products or something on similar lines as your company. In such circumstances, you cannot rely on only one product. With upgrading and updating, diversifying is also important. Your product may be completely different; however there is no harm in having a co-product. It will even help you increase your cash flow. More investment will lead to more expansion and profit.
An unsteady business: Everything has a right time. You cannot have dinner in morning or breakfast at the night. Similarly, there are some products and services you can use only at a particular time. The business associated with such services is called seasonal business. They have a specified season where they see a lot of sale and profit. However, once their season is over their sales drop down. In such case scenario, relying on more than one product or creating a business plan such that it absorbs the unsteadiness of your business is recommended.
At last, a conclusion can be drawn that cash flow being an important component of business cannot be neglected. Hence, you need to tackle cash flow problems and manage your cash flow. Smart mind, effective strategies, advice full of experience, financial help and management is what you need to maintain your cash flow.

This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST software, GST Return Filing, GST Registration, Section 8 company registration, Nidhi company registration, IEC registration.

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