THE BUSINESS TRIBE

HOW IS YOUR CASH FLOW DOING?

Every now and then I get to study and analyze a company´s financial situation and I get surprised by unhealthy cash flow statements. Figures that sooner or later leads to severe financial problems and in worst case to bankruptcy.

Many of these cash flow problems could have been avoided if only the management team had paid more attention to important signs in their company´s statement on a regular basis, or were more responsive to their controller teams.

A company may experience operating cash flow problems, with negative cash flows, in many different situations. The three most common are when cash from sales get trapped on the balance sheet and build up a negative cash flow during a period of time. That happens when customers delay payments, resulting in a build-up of receivables. The second situation is when inventory rise to inappropriate levels because the product(s) is not selling or is being returned. The third reason is when a company is not applying a firm cash management and controlling system to detect negative cash flow build-up in time.

During expansion and growth you might experience negative cash flows, wish could be alright if you have a grip of it and it doesn´t last for too long, since the expansion is a kind of investment for the future.

If you want to decrease the financial worries in your company and sleep tight at night, and if you would like to attract investors to invest in your company, you need to strengthen your cash flow statement. The sooner the better.