Cash flow problems in a business: too high an expense
Understanding the origin of a company’s cash flow problems is key. Each year, more than 25,000 small businesses go out of business due to poor cash management. According to a study published by the accounting software publisher Sage, almost one in two small businesses and one in five SMEs say they have already had a cash flow problem. The industrial, construction and commercial sectors are the most affected. In this article, I’m going to introduce the origins of the most common cash flow problems seen by our Agicap customers, and how to fix them.
In this article
1. The source of a company’s cash flow problems: too much overhead.
General expenses are all the expenses incurred by a company in the course of its activity, with the exception of salaries and direct materials: rent, travel expenses, telephone subscriptions, energy consumption, etc. In too many cases, a company’s cash flow problems are explained by overheads that are too high in relation to their activity. Often, the companies concerned have piled up over time new recurring expenses, which certainly do not weigh very heavy individually, but which overall strongly penalize the accounts of the company.
2. What solutions to reduce the costs of your business? The solution to this problem may be simple to understand, but not necessarily easy to implement. Which way to take the problem? It’s such a big problem that it’s hard to know where to start. To solve this cash flow problem, you must above all be methodical: at. First, start by listing all of your overhead costs. b. Second, evaluate your spending items one by one, starting with the largest expenses and look for sources of savings. vs. Third, set spending targets, and regularly track your “achievement”, that is, spending.
Methodically identify your overheads The easiest way to identify all of your operating expenses is often to start with your bank details. Take your latest bank statements, and divide your expenses into major categories:
Rents Travelling expenses Fees Telecom subscriptions Insurance Bank charges Computer science Marketing expenses Energy expenditure: electricity, water, gas Administrative supplies Etc.
The + Agicap: to save time and be more precise, do not hesitate to rely on management tools like Agicap, which allow you to automatically categorize your bank data. This will save you time, and make sure you don’t forget anything! b. Analyze your expenses, and save! Analyze each of your spending items in detail by asking yourself the right questions: is this spending really necessary for my activity or is it superfluous? Are these rates aligned with market prices? Can I find it cheaper elsewhere? Did I make several quotes before choosing this service provider? Since when haven’t I renegotiated my contract? Do not hesitate to ask for quotes again if some of the rates you charge are exaggerated. Also remember to check each of your subscriptions. Even if the amounts, taken individually may seem small, put end to end, they can represent a significant sum paid each month. Our customers have often made savings by renegotiating or changing their Telecom operator, by canceling certain unused options, by renegotiating with their software publishers, by renegotiating their insurance, their bank contracts, etc.
To help you do this job, it is often useful to try to compare yourself to your peers: what is the share of rent among other restaurateurs in my neighborhood? What is the share of energy expenditure in industrial VSEs in my sector? Etc. If the weight of some of your expenses exceeds the standards in your sector of activity, it is that there are probably gains to be hoped for. So how do you get this information? No need to look into a crystal ball, rest assured! You can first ask your accountant to provide you with key ratios for your industry. Or consult the INSEE data.
The Agicap +: do you prefer to access these market indicators effortlessly? Use the Enterprise Agicap management solution. Thanks to its “Machine Learning” mechanisms, you will know at all times if your cost structure deviates from that of the VSEs in your sector! If you do not have enough time to devote to this exercise, or if it seems too complicated, you can also be accompanied by expert professionals, for example Romeo or Marie-Reine. Note that in some cases, advisers can be paid “on success”: their remuneration is a share of the savings. In short, the service costs you nothing, it even saves you money!
You can also be accompanied by expert professionals who help you save money.
Track your expenses and compare them to your goals Once you have reshaped your cost structure, remember to include your approach in the long term: it is the best way not to have to redo this cash flow problem in the next six months … expenditure objective not to be exceeded on each of your cost items, and regularly monitor your expenditure. If you exceed one of the objectives you had set, you will be automatically alerted, and can take appropriate measures before ending up in the red. The + Agicap: Agicap allows you to automatically track all of your expenses and compare them against the objectives that you initially set yourself. You are therefore automatically alerted if your expenses become “excessive”. At the root of cash flow problems there are often charges which can be easily reduced. So, if you are having cash flow problems, don’t wait any longer and adopt the right reflex by trying Agicap for free!