The Negative Effects of Improving Cash Flow

Effects of Improving Cash Flow

Businesses put a lot of emphasis on improving cash flow management and keeping their cash flow in the positive. While positive cash flow is a sign of a healthy business, it’s important not to lose sight of other aspects of your operation.

If you focus too much on cash flow and improving it, it could have a negative effect on your business.

How Putting Too Much Emphasis On Financial Flow Might Harm Your Business

Emphasis On Financial Flow

Many businesses have difficulties improving cash flow. But rather than taking a balanced approach to resolving the problem, they put too much emphasis on cash flow. Here’s how that can be damaging to a business.

Instead Of Adopting a Customer-Focused Strategy, You’re Prioritizing Cash Flow

If you’re only focused on cash flow, you’re not thinking about the customer and their experience. Without a customer-focused strategy, you risk:

  •         Making customers feel like they aren’t valued
  •         Providing poor customer service
  •         Not going above and beyond out of fear of impacting your cash flow

Customer-Focused Strategy

It’s important to delight your customers with a great experience, especially when you’re still in the early stages of establishing your business. If you’re only worried about cash, then you’re not thinking about how your customers feel about and experience your business.

Eventually, those customers will turn to your competitors and may even spread the word that your business doesn’t care about its customers.

In the long run, you’ll only make cash flow issues worse because customers won’t stick around. To make matters worse, you’ll damage your reputation and make it harder for new customers to trust your business.

Pushing Clients for Money Results in Alienating Them

It’s important to focus on improving cash flow in a small business, but if you’re constantly pushing clients for money, you will alienate them.

If clients are adhering to your payment terms, then avoid hounding them to pay early or more quickly than they are able to. Doing so will only damage your relationship and your reputation.

Pushing Clients for Money Results

If you’re constantly pushing clients for money, they will begin to feel as if cash is your only concern. If you want your clients to give you repeat business, then your business relationship should be about more than just money. It should be about providing the best possible products or services and developing a mutually beneficial relationship.

But what about clients who aren’t paying on time? Implementing clear payment policies can help ensure that clients are meeting payment deadlines and that there’s no need to chase them down to make their payments. If you’re not setting clear policies, then customers won’t know when to pay or when it’s considered a late payment.

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Increasing Cash Flow Can Be Expensive

There are many methods of improving cash flow, but some can be quite costly. Many business owners take on debt in order to resolve cash flow issues or use invoice factoring.

However, credit cards, lines of credit and invoice factoring all come at a cost. You either take a hit on your profit, or you wind up with a monthly bill and interest that you have to pay.

Increasing cash flow is important, but when it becomes your sole focus, you may wind up creating more problems down the road. Taking on debt or invoice factoring can both be costly for businesses despite their ability to fix immediate cash flow issues.

Concentrating Only on Cash Flow Might Result in Lower Profit Margins

When you’re focused solely on cash flow, you may wind up reducing your profit margins.

For example, many business owners hold sales to clear stock from their shelves and generate some cash. But if you start using sales as a way to improve cash flow and deal with cash flow issues, then you may reduce your profit margins.

Eventually, customers will just wait until your next sale to make their purchases. When more customers purchase your products at a lower price, your margins will take a big hit.

Wrapping Up

It’s natural to be concerned about your cash flow, and there are many tools to help with management, such as cash flow for QuickBooks, Xero or FreshBooks. But if your only focus is on your cash flow, you risk damaging your business’s reputation and the relationships you’ve built with your customers.