14 essential factors for diagnosing and addressing cash flow problems


When a company experiences declining or unstable cash flow, it becomes vulnerable to a range of adverse effects that can jeopardize its survival. To identify and resolve a cash flow problem, it is vital that leaders thoroughly examine revenue sources, carefully evaluate spending for efficiency, assess cash handling strategies, and verify the accuracy of financial forecasts.

Below, 14 gotechbusiness.com Business Council members provide specific factors that leaders can use to diagnose and address cash flow problems and achieve cash flow stability in their businesses.


1. The root cause

An important factor is identifying the cause. It is crucial to conduct a thorough analysis of financial statements, including accounts receivable, accounts payable and inventory management. This helps identify any inefficiencies, delayed payments or excess inventory, enabling targeted solutions to be developed to improve cash flow and overall financial health. – Lee Blakemore, Introducing

2. Cash Conversion Cycle

The cash conversion cycle (CCC), a measure of the time it takes a company to complete the cycle of buying raw materials, converting them into finished products, selling the goods and collecting the cash, is a essential factor to assess when diagnosing a cash flow problem in a company. It provides insight into a company’s working capital efficiency and ability to generate cash. – Bradley Saveth, SupplyCaddy

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3. Weekly and monthly updates

Using a cash dashboard is key to understanding your issues. First, project receivables are overdue for a few months and do the same with debts. Once that’s done, add overhead outflows, such as payroll and rent, and take a close look at net cash by the week or month. Then adjust your supplier terms to closely mimic your customer receivables, limiting your cash flow. Also look at your pricing models. – Thomas Johnson, Southport Marketing, Inc.

4. The labor efficiency ratio

One factor I keep an eye on is the labor efficiency ratio. We know our “sweet spot” ratio number. If the ratio is too low, we know that we will soon have cash flow problems, if not already. It’s a simple calculation that tells you if your staff costs are too high for the amount of revenue and work you’re bringing in or vice versa. – Melanie Amberman, VaVa virtual assistants

5. Overdue Invoices

Most businesses face cash flow problems due to delayed payments from customers. The essential factor to keep a close eye on is the status and value of the bills after their due date for payment. Politely follow up on these customers. It is essential that customers are billed on time and that overdue bills are followed up for payment. – Beth worthy, GMR Transcription Services, Inc.

6. Financial Data and Trends

Data-driven insights can be used to gain key insights into cash flow problems and help develop effective solutions. A company can identify potential sources of cash flow problems by examining current financial data and trends. This could include looking at income and expenses, evaluating the balance sheet for liquidity ratios, or assessing the company’s overall debt levels. – No Nick, Recruit Gyan

7. The debtor process

When diagnosing and addressing a cash flow problem, it is essential to review the accounts receivable process. Evaluate billing, collections, credit terms and customer relationships and implement cash flow forecasts. Improving this process can improve cash flow and financial stability. – Alexander Westgarth, WineCap Ltd

8. Cash Flow Timing

The timing of cash inflows and outflows is one of the factors to be assessed. This is because understanding when payments are due and when revenue is expected can help identify cash flow gaps and develop strategies to improve them, such as negotiating longer payment terms or accelerating collections. – Salvador Ordorica, The Spanish Group LLC

9. Cash Flow Forecasts

Cash flow is the lifeblood of any small business as it ensures smooth day-to-day operations and the ability to invest in growth. By predicting your cash flow, you can anticipate potential shortfalls and take proactive measures to avoid them. Having a clear view of your cash flow helps you make informed decisions about resource allocation and investment in growth opportunities. – Francisco Ramirez, The ACE group (TAG)

10. Existing Payment Policy

When addressing cash flow issues, examine payment and collection policies to prevent delayed or unpaid invoices from negatively impacting cash flow. Provide clear payment terms, track slow paying customers and offer discounts for early payment or automatic reminders. In addition, it is critical to review spending, reduce unnecessary expenditure and ensure responsible scaling. – Stephen Sokoler, trip

11. Sales and Expense Balance

A balance between turnover and costs is important. If a company has more cash in than cash out, the company will not go bankrupt. In the cash flow diagnosis, determine whether there is a balance that can generate sufficient profit at the minimum sales unit of products and services. Or, like the manufacturing industry, if they need money first, it’s important to check the break-even point in the business plan. – Karita Takahisa, UNITE PLATFORM AG

12. Current Expenses

If you are facing a cash flow problem, you can take a step to review your expenses. I think you’ll have a better chance of resolving the problem if you focus on areas where you can make changes, and the expense list is one of those areas. Essentially, you need to take a critical look at how you spend money in the business and see if there are any unnecessary expenses or waste. – Eric Pam, Health channel

13. Financial Capacity

Understand your cash position at any time of the month. How are the debts, receivables and payments on your account doing? Is there a backlog somewhere or are you ahead of something? What about your assets? If you need to sell something to quickly cover a shortfall, how liquid are you? Are there any market-to-market losses you should book? Regularly consult with the finance department to discuss this. – Zain Jaffer, Zain Ventures

14. The time between winnings and payouts

In business, a lot of focus is on profit, but in reality, failing to pay suppliers, employees, and taxes on time is a recipe for disaster for small businesses because you can run out of products to sell in no time. The solution? Instead of focusing solely on profit, you can focus on dramatically reducing the time lag between cash inflows and expense payments. – Anna Stella, BBSA