More than half of small businesses fail in the first year and is usually due to cash flow problems or bad management. Managing your business’s cash flow and keeping well organised is vital to business success. Poor cash flow management can lead to problems within the business and even lead to business failure.
Here are five of the most common cash-flow mistakes to avoid:
- Overestimating future profitability:
Overestimating what your business will make is a common issue with small businesses. Estimating your future profit can be tricky, especially if you are just starting out as you don’t have the experience or any previous history to go off. Your sales expectations should be realistic and based on previous sales history and revenue. However, if your business is new then look at other businesses in your industry as well as having a mentor will help to predict future sales.
Overspending can occur from not having a proper budget in place and a lack of organisation. It can be easy to blow money on things that aren’t going to be beneficial to your business, especially when starting up a business. Having an up to date budget will ensure your money is going to the right places and help prevent overspending by knowing exactly how much you can spend in which areas. Resist the urge to make unnecessary “spur of the moment” purchases and allocate funds accordingly.
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- Not chasing up unpaid invoices from clients:
A lot of businesses aren’t diligent enough when it comes to accounts receivable. Not being proactive when chasing invoices will have a huge impact on your cash flow especially if invoices are being paid after the due date, leaving you out of pocket. Having set procedures in place for accounts receivable as well as late payment fees will help keep track of invoices.
- Not having a budget in place:
A lot of businesses don’t have an up to date budget in place. Budgeting and planning are essential for managing your day to day cash flow and long term expenses. Having a budget in place will help manage the incomings and outgoings of your business. This will give you an idea of where your business stands financially and if you can foresee any issues that may come up in the future.
- Not having a cash reserve:
Business’s run into cash flow complications, which happens to all businesses. Having some money set aside for these situations will help make it less destructive to your business’s operations. Having a money buffer will also help during the quite months when sales are slow. Getting a business loan for working capital can help tide things over when cash low in your business gets a bit sparse.
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