In any kind of business, revenue management is vital, but it’s easy to get waylaid by cash flow issues. In fact, almost every business will have experienced periods when they were running at a loss or struggling to get vital payments. However, some industries are notorious for having more cash flow issues than others.
In this article, we’ll look at why it’s so important to handle cash flow well, and which industries are most well-known for needing thorough cash flow management.
We’ll also go over some of our top tips and tricks that you can use to make sure your business doesn’t stumble, such as looking at how business credit cards help manage cashflow, or how you can improve your accounting methods to ensure everything runs smoothly.
Why can cash flow be a problem?
If you run a company, you need to be constantly aware of your cash flow. You’ll always have outgoings, whether that’s employee wages, bills from suppliers, utility costs, or other liabilities.
If you aren’t generating enough revenue to cover all your expenses, you could land in serious problems, and 82% of failed small business blame poor cash flow management as one of the reasons that they had to close. It’s not uncommon for companies in all kinds of industries to have cash flow problems at some point during the year, but you need to make sure that your revenue during the good times can help sustain you through any tight times.
Of course, these cash flow issues are more commonly found in some industries.
Industries with cash flow issues
Some of the main industries where you’ll see cash flow issues include the following.
Hospitality
The hospitality sector can be highly seasonal. In warm destinations, you’ll find that the winter months can bring cash flow problems when there simply aren’t as many tourists, guests, or customers. For skiing and winter destinations, the summer can be quiet with fewer patrons.
Service providers
If you provide any kind of service to people, whether it’s landscaping, tutoring, cleaning, or maintenance, you can develop cash flow problems because customers can take a surprisingly long time to pay. Plus, it can take hard work to make sure that you have a steady flow of customers all year round.
Manufacturers and makers
Anything that you make and then sell will have risks. The upfront cost of materials and making items before you sell them can leave you sitting in the red for a while. This is worse when you produce large numbers of items at once, or when your materials are very expensive.
Wholesalers
Wholesalers have a similar problem to manufacturers, in that they have high up-front costs. This is usually because you’ll have to buy a significant number of items before you can sell smaller numbers for a profit. If your inventory doesn’t sell, you can be stuck without money in the bank to meet your own financial obligations, and it can prevent you from investing in more inventory.
Food and beverage
Not only is the food and beverage industry seasonal, but you’ve also got the added risk that your inventory is often perishable. This is not a problem in the good months, but if you struggle to make enough sales, you’ll need to buy more ingredients while lacking funds.
Property
Property is another industry where there’s often significant downtime, which can cause cash flow problems. When any of your properties are uninhabited, due to refurbishments, trouble getting a tenant, or repairs, you’ll often find that your balance isn’t looking too healthy.
How does company size affect cash flow?
All companies can struggle from cash flow problems, whether they’re a tiny start-up or a huge multi-million dollar business. However, larger businesses often have a diversified income and savings to ride out the challenging times. Even if one portion of the business is struggling, cash flow problems can be mitigated by having another sector of the business to bring in funds.
Smaller businesses rarely have this, meaning that a quiet time can be more damaging. In fact, 38% of small businesses state cash flow as their primary reason for failing, and 50% of small businesses collapse in the first five years.
How to combat cash flow issues
Luckily, there are some ways that you can look at protecting your company and yourself from these cash flow problems.
Credit cards
Business credit cards can act as a vital line of credit to help cover any times when you’re not getting enough income. They’ll also let you see in one easy statement where the money goes, so you can try to keep a handle on your expenses.
“Regardless of their specific industry, when facing cash flow problems businesses can use a business credit card to help navigate the situation. With a credit card, businesses can leverage their credit line to cover expenses and bridge any gaps in cash flow.”
David Luck, Founder and CEO of Capital on Tap
Cash flow management
Another key point is to make sure you monitor your cash flow properly. As well as tracking all your outgoings, you need to keep on top of payments due to you. Most companies have outstanding payments that they’re expecting. Knowing exactly how much money is coming and going (and when) is vital to help you plan for the future and get through any slow patches.
Conclusion
Small businesses are by far the most likely to experience cash flow problems, especially in industries such as hospitality, manufacturing, and services. Cash flow issues are one of the biggest reasons that businesses fail, but it doesn’t have to happen to your company.
Getting flexible credit through a business credit card and keeping a careful eye on your incomings and outgoings can help reduce the issues you face and give you a greater chance of sailing through any revenue gaps with ease.