Handling business even if it is a small one can be overwhelming because the problem that may arise is not one but many. Running a business means you have to control every aspect including the finance. It is a very sensitive and critical aspect in business you always have to be ready to deal with. Business’s cash flow is one of the issues many entrepreneurs face. Finding out the cause or the root of the problem can be beneficial to find the right solution.
Cash flow problem to your business
Your business can be struggling from cash flow problem. Even if you have financial plan laid out from the beginning, the problem may arise sooner or later. The important thing is how you deal with each of them. Pinpointing the real problem of cash flow can be tricky because it passes through different areas in your business. However, some are mostly affected and caused the problems within your business. Thus, you have to find out what areas to investigate.
Calculate your profit margin
Profit margin is one of the most affected area when cash flow problems arise. Sometimes, a good deal doesn’t earn you any profit and cost you money instead. Thus, reviewing your profit margin can be a start of your investigation during cash flow issues. Your profit margin doesn’t have to always be high. Sometimes, the lower one allows for additional sales in the future. However, make sure that your profit margin is where your business needs to be.
Review the financial metrics
Financial metrics are important for you to review because they can show you the essentials to identify the real problems causing the cash flow issues. They also help to determine the net profit margin. The ration shown in the financial metric gives you insight whether or not the profit generated from sales. Also, the ration can help you measure if there is any overhead costs happening.
Evaluate the conversion
The root of the problem can also come from your website conversion rates. Having a website for your business is not enough to keep it grow progressively. You need to optimize it with the proper funnel. If it is not optimized properly, you may end up wasting money on ads and your website has high bounce rate instead.
Investigate the cash flow issue
Next area you can investigate to fix cash flow issue is physical space cost. Remember that having a physical space is not a must. It is not always necessary to have. Just look at how many business running fine during the pandemic with the policy of working from home. Investing in virtual service instead of physical ones might serves you good opportunity to cut some cost.
See any large purchases
Large purchases are often the cause of major cash flow issues. It is important to pay attention to when the large expenses will be deducted because the revenue brought due to the cost of supplement or inventory comes in few weeks after. Taking notes of the period of this cost can make it easier for you to control your cash flow.