The real reason your business is bleeding cash–and how to fix it
Imagine that your business is in trouble. Real trouble. It’s practically bleeding cash, and you’re rapidly losing customers.
In short, your business is dying. And unless you find regular and profitable customers soon it’s going to flatline.
Not a nice image, is it?
Fortunately, most businesses can make a full recovery providing:
- they receive the right treatment
- it’s administered quickly.
The Band-Aid solution
When a business is rapidly losing money, the instinctive reaction is to stop spending it. But while this will stem the flow in the short term, it rarely fixes the underlying problem. It’s like applying a Band-Aid on a deep knife wound. It may stop the bleeding, but it won’t repair the underlying damage.
Problems with cash flow are often the result of:
- Slow-paying customers
- Customers who become delinquent, end up bankrupt, or simply ‘disappear’
- Lack of sales
- Defective products or rework
- Lack of customers
- The inability to supply a product or service because:
- The product isn’t available
- No-one is available to provide the service
- Higher interest costs from additional borrowing.
To try and solve these problems, the business owner may spend extra time chasing up slow-paying customers for payment, or even reduce prices and have a sale to sell more of their product or service. But slashing prices slashes profits, reducing the business’ cash flow and speeding up its demise.
Problems with defects and rework are often tackled by getting the sales staff involved in fixing problems with past sales. But this is like taking your hand off one bleeding wound to stop the bleeding of another. Not only does it increase the cost of that sale, it also reduces the opportunity to make new sales.
Cash flow is king
Whether you’re a sole trader or a multinational, cash flow is critical for your business. Without it, you run the risk of your business becoming insolvent.
If your business already has cash flow problems, chances are you’ve stretched your payment terms to their limits. Your relationship with your suppliers may already be shaky, and further payment delays could damage both current and future supply arrangements.
Unfortunately, most small business owners don’t have surplus cash they can inject back into their business. They need to borrow it instead. And with banks tightening their lending criteria, they’re far less likely to lend funds to a business with cash flow issues.
Even if the banks are willing to lend the money, it still won’t solve the cash flow problem. It’s a short-term fix that can cause long-term issues. Those loans will need to be repaid eventually—with interest.
Treat the cause, not the symptoms
These solutions may stop the bleeding for a while. But until you find out what’s causing the bleeding, the problem will keep coming back. You need to identify the real reason your sales have stopped, your customers aren’t paying, and your profits are decaying.
What happens to a customer’s enquiry once they’ve filled out the form on your website? If you don’t have a call to action like this, you’ve got another problem—your sales pipeline has been cut, and potential customers are leaking out the sides and disappearing.
The fact they filled in the form means they want to do business with you. But if no-one from your business responds, they’ll find another supplier (possibly your competitor) and become their long-term customer instead.
Maybe there’s a blocked artery somewhere—a major blockage preventing your customers from receiving your products or services. Your customers are hardly going to pay for something they don’t get, are they? So where’s the blockage? How did it get there? And can you remove it without it growing back?
Treatment for your business
So why is your business bleeding cash? And why has your sales and production cycle stopped working?
Well, just as you should get medical problems diagnosed by a physician, you should have your business’ problems diagnosed by a professional business adviser.
And that’s where we can help.
We’ll assess your business’ health by conducting a financial analysis and reviewing your business through our TRUST business assessment. And from there we’ll develop a treatment plan to stop the bleeding, fix the damage, and get your business back on its feet.
Don’t put your business’ financial health at risk. Get in touch with us today.