A business can develop cashflow problems for various reasons, including:

• unprofitable trading
• insufficient funds to support rapid growth
• supplier and other cost increases
• changes to economic or market conditions.

It is important to identify the exact reason for a cashflow problem and seek an appropriate solution.

Regular analysis of your business’ cashflow statement will match income forecasts and outgoings within a period and so determine what is needed for survival and growth. A change in business strategy such as a special product promotion or volume discount offer may generate additional revenue and avoid the need for borrowings.

Understanding the financial health of the business will help to:

• identify opportunities for cost reductions
• manage cashflow and capital funding risks
• identify problems before they arise, and
• get feedback on the effectiveness of management decisions.