Sunday, August 3, 2008

Cash Flow Problems

Before I continue writing about the various business risks I thought it was time to write a post on the causes of Cash Flow Problems. In a future post I will talk about how to alleviate Cash Flow Problems. In some of my previous posts I have mentioned some causes of Cash Flow Problems, but in this post I thought I would identify as many causes as I can. Cash Flow Problems are caused by:

1. Too much inventory.
2. Too much salary to owner or too many withdrawals by owner.
3. Doing business with customers who are slow paying or who do not pay at all.
4. High Overhead too high.
5. Too much interest expense on debt.
6. Undercapitalization from the beginning
7. Unexpected casualty not covered by insurance.
8. Excessive purchases of fixed assets and capitalized costs.
9. Operating losses
10. Paying bills too quickly

The above bullet points represent the key causes of Cash Flow Problems. As previously stated in future posts I will identify ways to alleviate Cash Flow Problems once these events occurs.