Do You Have Cash Flow Problems? 5 Signs To Know
I’ve been seeing an interesting pattern in my both my business and personal life lately. People are starting to feel the effects of a Cash Flow downturn. That is, money is trickling in, but we are still spending like it’s a waterfall. This can obviously lead to Cash Flow problems for anyone, and entrepreneurs are no exception.
Now, it’s no secret that Cash Flow fluctuates, but many of our cash needs stay the same. So that begs the question…
How do you manage your money in such an unpredictable environment, while still living the life you’re used to?
This question weighs heavy on me lately. And what help I can offer I will pour into you, and the universe, in hopes that this will change the course of our collective futures toward abundance.
So with that in mind, let’s talk about what I’ve been seeing lately.
For a lot of us, it seems like all of a sudden there is no money in the bank account. It might feel a little like a mystery, like wait, what happened? People tend to think our cash takes a hit with ONE major event. But the truth is that it’s a series of small things that can add up big time. What you need to know now is how cash flow problems usually start.
This is why I’m sharing the 5 biggest signs that you might have impending cash flow problems, so you can catch them before they get too big. (Or prevent them from happening in the first place!)
Here are 5 warning signs that your Cash Flow is crashing:
Sign #1: Prices have risen, but yours haven’t.
Since COVID I have seen a HUGE increase in prices for the “little things.” For example, tech companies have significantly increased their prices for software. Most online businesses rely heavily on multiple software applications. So it becomes $1 here, $10 there, and sometimes even bigger increases. Soon those “little” increases add up, and this can’t help but increase the cost of doing business. When that goes up, your profit margins take a downturn. So if you haven’t found a way to deliver your products more efficiently OR you haven’t raised prices, this could seriously affect your Cash Flow.
Sign #2: You rely more on short-term financing options
You might find yourself having to fund your bank account with owners contributions, or taking on short-term loans like the ones that Square, QuickBooksOnline, and Stripe offer. This is a sign that you’ve exhausted your prior year’s profits, and are now using current income to pay past bills.
Sign #3: Sales have decreased, or current clients are slow to pay (or both)
If you have a dip in sales combined with increased overhead, you could be “burning the candle at both ends” when it comes to cash. And if your clients are slower to pay their invoices and your expenses and income aren’t aligning, this can create a cash flow jam.
Sign #4: Your Owners Draws/Shareholder Distributions exceed the total of your Net Income.
This can be a normal part of doing business. But if it goes on for too long, or your net income/draws don’t balance, this can plummet you into a cash restraint. That’s because you are taking current draws from previously profitable years, and leaving no cash buffer. This is a sneaky one because you see a profit on your P&L but your cash in the bank is slowly decreasing. As a result, you might find yourself seeking those short-term financing options we talked about in #2. All of these things together can slowly eat away at your cash reserves.
Sign #5: All Draws/Shareholder Distributions are going to personal spending needs, but there is no tax savings.
You may have been taking draws or an owner payroll to satisfy your personal spending needs. But if you don’t also create a buffer for potential tax payments and emergencies, this can become a cash pitfall.
If any or all of these sound familiar, I promise you’re not alone!
So what do you do to turn cash flow problems into cash flow solutions? On my next post, we will be looking at each of these warnings and turn them into opportunities. We’ll also talk about the best way to avoid cash flow problems to start with.
BTW, if you’re already experiencing one or all of these, please reach out to me. If you are experiencing something entirely different, I’d love to hear about your experience, too!
Leave me a comment below and let me know what your experiences have been like lately.
Until next time,
Love, Light, and MONEY, Honey…
Kaylee