3 COMMON CAUSES OF CASH FLOW GAPS

Most businesses whether big or small, tend to struggle with cash flow gap at a certain stage that can be really pernicious for a long run of the business.

Here we have given a short account of 3 types of common cash flow gaps :

  • Weak Financial Planning & Management

One of the most common reasons for Cash Flow flaws is weak financial planning & poor execution. It is advisable to work according to a nifty financial plan and reviewing it on a regular basis. It helps you pre-conceptualize any potential cash flow gap and provides you ample time to rectify to the gap before it causes any severe damage.

  • Flaws in Inventory Management

Flaws in inventory management is another cause of cash flow gap and probably the costliest one. Excessive inventory results in your valuable cash stuck in a product that is still with you and not with the customer. This hinders in wealth generation. Moreover, if you buy products in bulk without turning over your stock, it may lead to the product expiry and subsequent loss. Thus, a strategic approach to inventory management is always recommended.

  • Rigid Funding Solution

While running a business, whatever approach you take towards funding, it is important to evaluate whether or not the approach will produce the perfect solution. For example, the funding approach that you took while starting-up your business, might not necessarily be effective if you are taking your business to the next level. Therefore, it is recommended that you assess your current funding solution against other available products to scrutinize if there are other better options for fund solution.

Cash flow gaps are common but understanding some of the causes can help you find the solutions that help you keep cash flow steady and ensure financial stability and growth for your business.

Regards: www.smartbusinessadvisors.com.au

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