1. Inefficient cash management across departments or locations
Problem: Larger corporations can come across disruptions between the different business segments or units. Some businesses don’t use uniform key performance indicators (KPIs) or aren’t consistent with them. It makes it difficult to track sales, revenue, and lead generation when putting them all together to see the bigger picture.
Solutions:
- Implement a cohesive financial reporting and/or banking system between departments. This helps to keep everyone speaking the same language.
- Have a cash reserve that can be used in times of emergency.
- Allow interdepartmental transfers between units to help balance the corporation’s overall cash flow. (With a cross-lending department, a location that’s lacking can get support from a location that has resources to spare.)
- Assess each individual unit with a forecast, as well as a collective forecast for the entire business.
2. Underestimating operational costs
Problem: “Spending too much” is a wide term for a slippery slope many businesses fall into. Expenses easily add up, from payroll to capital to inventory costs. It can be an overwhelming problem without a clear next step in tackling it.
Solutions:
- Analyze income statements to closely track revenues and expenses.
- Regularly analyze balance sheets to stay on top of all your assets, liabilities, and shareholder equities.
- Compare your fixed vs. variable costs to see where you might have room to cut expenses.
- Put specific, numerical benchmarks in place to gauge current and future spending, as suggested by this Preferred CFO article.
3. Disruptions in supply chain & logistics
Problem: When your product isn’t easily shipped from point A to point B, lost inventory leads to lost sales. Paying more for expedited shipping is only a quick fix. When prices of material goods rise, general operational costs can start to soar.
Solutions:
- Adopt automated supply chain visibility software that allows for transparency.
- Diversify your supply chains so that there are multiple pathways for products to travel.
- Diversify your products. If your income is solely based on one type of item, your revenue will plummet when there’s a hurdle in getting the product to the consumers.
- Implement regular risk audits to have a forward-thinking mindset in tracking logistics
4. Inventory mismanagement
Problem: When businesses overstock, they lose money by having unsold items sit on their shelves. When businesses understock, transactions are lost from unrealized demand. On a large scale, this can be difficult to manage and predict.
Solutions:
- Collect and analyze existing sales margins, as suggested by Preferred CFO. Are there any products that do not bring in enough revenue to justify the inventory space they take up?
- Collect and analyze past sales margins to predict future ones. Take note of patterns—are certain products on a more seasonal sell cycle?
- Implement just-in-time (JIT) inventory strategies. According to Investopedia, JIT directly organizes material orders from suppliers as needed. This increases efficiency by constantly reevaluating the need for producing goods.
5. Too many investments
Problem: Large corporations rightfully use their resources to invest in promising opportunities, such as the latest innovations in technology. However, they can often find themselves invested in underperforming assets without an exit strategy.
Solutions:
- Regularly monitor the performance of the company’s asset portfolio.
- Maintain a clear strategic focus for your corporation’s investments. This prevents any steering away from core initiatives.
- Divest and/or liquidate underperforming investments.
6. Late payments from customers
Problem: Cash flow can be lowered significantly when payments from a business’s customers are late. While this isn’t completely the fault of the business, Forbes states that it can often mean that the established terms for payment aren’t tight enough.
Solutions:
- Shorten payment deadlines or offer discounts/rewards for those who send earlier payments.
- Keep strict time in customer invoices to stay on top of inflow from product purchases.
- Make it convenient for customers to pay on time by accepting and including various payment methods.
7. External factors
Problem: How can a large business expect the unexpected? Forbes reports that unpredictable market conditions and unforeseen lawsuits can quickly change the state of a business’s inflows and outflows. While these factors can’t always be prevented, they can be prepared for.
Solutions:
- Again, have a reserve of cash that can serve as a safety net for your business should unexpected expenses occur.
- Implement internal auditing and enhance risk management to stay in the know of your business and what is most likely to happen.
- Diversify your business’ sources of revenue. This could include having a variety of products or expanding the geographic areas to which you reach consumers. The more varied, the better. Having an array of ways for your business to receive revenue keeps you from having all your eggs in one basket.
Conclusion
Managing cash flow can seem like a mountain, especially on a large scale. Discerning and confronting areas of concern can be daunting. But each effort to track your financial standing is a step toward your business’s long-term success. After all, there’s a lot of time, money, and effort put into your business. Who wouldn’t want to maximize that?
