Blog Layout

Cashflow freedom - The 7 causes of poor cashflow

Anna Stubbs • Apr 19, 2024

Cash is the lifeblood of any business. Even profitable businesses can and do fail because of poor cashflow.

What’s important is that you understand your key cashflow drivers. Improving cashflow is often all about changing your processes. Processes such as how you order stock and pay for it, how you bill for your services, and how you make sure you get paid by your customers.

Treating the symptoms of poor cashflow without fixing the underlying causes is time-consuming and frustrating.

Inadequate cashflow is a symptom of management problems in a business, NOT the cause. In order to fix these underlying causes, you need to be willing to make the necessary changes. You’ll build a much better and valuable business, as well as improving your cashflow.



While there are many causes of poor cashflow, most of these relate to one or more of the following seven categories.

1. Your cash lockup.
By lockup, we mean the cash that isn’t in your bank account because it’s work in progress (work you have done but not yet billed for) or you’ve billed your customer but are waiting for payment.

2. Your accounts payable process.
If you don’t have spending budgets in place and aren’t taking advantage of the best possible supplier terms, your cashflow will be impacted.


3. Your stock turn.
If stock is moving too slowly, it will take longer to turn the stock you have already paid for into cash.


4. The wrong debt or capital structure.
For example, if your loans are being repaid over too short a term, this will place a big strain on cash reserves.


5. Gross profit margins are too low.
Your gross profit margin is what’s left from sales value after variable costs are deducted. If it’s too low, it won’t be enough to cover fixed expenses and your drawings from the business.


6. Overheads are too high.
Every business should do a thorough review of its overheads each year.


7. Sales levels are too low.
If sales levels don’t support cash demands on the business, then sadly, the business is not currently viable.


If you need help streamlining your processes and increasing your cashflow, we can help you identify the best areas to focus on during a Cashflow & Profit Improvement Meeting.

"If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction, and cashflow." - Jack Welch

Are loans to directors and employees tax free?

By Anna Stubbs • 14 May, 2024
If you’re a director then taking out a director's loan against the cash in your limited company might seem like a sensible thing to do. But the reality is that overdrawn loans to directors can lead to unintended tax consequences if they’re not properly managed.

HMRC is cracking down on additional income sources

By Anna Stubbs • 14 May, 2024
HM Revenue & Customs (HMRC) has an obligation to ensure we all pay the correct amount of tax. But with many UK taxpayers now earning money from various ‘side hustles’, like eBay, Etsy or Airbnb etc, there’s a growing need to widen the net and review all sources of income. HMRC’s new initiative aims to weed out taxpayers who aren’t fully declaring their income sources , with detailed investigations to prosecute any wrongdoing.  So, what does HMRC see as a ‘source of additional income’, and what could the impact be on your tax bill if you fall within the scope of HMRC’s new initiative?

The seventh cause of poor cashflow - Sales levels are too low

By Anna Stubbs • 19 Apr, 2024
It might sound obvious, but it isn’t to many businesses. If current sales levels don’t support the overheads and other cash demands on the business, then your overdraft will keep increasing. This means that your business in its current state is not viable (unless you have ongoing access to new funds from investors or financiers). There are five ways to improve your sales levels. These are: 1 . Increase customer retention . Stop your customers from defecting to the competition. 2 . Generate more leads . Gain more enquiries from people who are not yet customers. 3. Increase your sales conversion rate. Get more of your prospects to buy from you. 4. Increase transaction frequency. Engage your customers to buy from you more often. 5. Increase transaction value. Help your customers to buy more products or services from you. There are literally hundreds of individual strategies that you can implement within these categories to increase sales. Sending you a list would be pretty silly of us and overwhelming for you. Some strategies don’t apply to your industry, and some just won’t work in your business for whatever reason. What we have found through experiencing a wide range of client situations over the years, is that certain things do work in each type of business. There’s a pattern that we see in clients - both good and bad! How does a business grow its sales without its owners becoming overwhelmed by a mountain of change? The best and most supportive way to grow and improve a business is to have someone looking over your shoulder from time to time, helping you build a plan and a forecast, and keeping you accountable to making the changes that will make the most important differences. Without that support, we all end up in our business and never working on it. Talk to us about how we can provide that support.
Share by: