3 places your business is haemorrhaging money – and how to fix it
With 82% of businesses failing because of poor cash flow, companies need to do everything possible to keep their finances in check.
For a company to survive long term, it needs to be profitable — if the amount of cash coming in doesn’t match what’s going out, then there’s a big problem.
Many businesses equate being profitable with making more sales, or even increasing the prices of their services. While both of these can certainly bring financial benefit, it’s not always about what’s coming in. One of the best ways of improving cash flow is by identifying where money is leaving the company unnecessarily.
Here are three common places that organisations needlessly lose money without realising, and how to rectify it.
1. SaaS spend
With the average business having 110 SaaS solutions and companies spending over $152 billion on this type of software in 2021, SaaS is a major source of expenditure among organisations. Yet, 94% of businesses are overspending on their SaaS solutions.
Common reasons for this include SaaS duplication, where a business has multiple apps providing the same function, and having unfavourable contract terms due to missed renewal and renegotiation periods.
To get a handle on these issues, keeping your SaaS stack under control is vital. This involves a number of steps, from creating a SaaS inventory and reviewing all the different apps, to embracing monitoring solutions and consolidating your licences.
Gaining visibility over your stack like this and optimising SaaS spend has benefits beyond saving money too — as noted by Vertice: “Without total visibility and control over your SaaS operations, you’re not only at risk of wasting a significant amount of time and money — you’re also putting your organisation at risk of security and compliance issues.”
2. Accounts receivable
According to PYMNTS, 93% of businesses experience late payments from customers. This can prevent companies from making moves like hiring new staff, taking on new projects, or paying off debts. Barclays report that over a quarter (25%) of businesses owners feel anxious or have seen their wellbeing suffer because of it. Optimising your accounts receivable process is therefore vital.
The most obvious way to do this is by setting clear policies with customers and penalties for late payments, such as a 5% fine after five days and work stoppage after 30 days, for example. It’s a good idea to automate the processes involved with this too, like invoicing and sending payment reminders. This will save you significant time and money.
Research from Begbies Traynor Group has found that over half (52%) of UK businesses are saddled with ‘toxic debt’ — debt that is unlikely to be paid back. Whether it’s interest on credit cards or loans or late payment fees on vendor invoices, these payments can add up and spell real trouble for your business.
It’s imperative that you closely audit your debt and the costs involved, and see which debts you can get paid off as soon as possible. For high interest payments, look for ways to refinance them or consolidate the debts into a lower interest option. When it comes to credit cards specifically, be sure to pay them off each month to avoid interest entirely, or consider using a debit card instead.