Cash flow is the lifeblood of a business, we all know that.
You might think only inexperienced business owners miss this out for their companies, but lots of experienced and savvy business owners actually face cash flow problems on a regular basis simply because of miss management in their cash flow.
Here are five of the most common mistakes that even big and experienced business owners commit and how you can avoid them.
Failure to Check Cash Flow Often Enough
Small and medium sized business owners often get lost in hundreds of tasks that need to be done to keep the current operation moving, focusing their energy on innovation, falling victims to the clock.
Though it’s completely okay to look forward to the future, it also pays to pause for a while, assess your brand’s strengths, the market, the industry and then strategize. For small and medium-scale businesses, quality is the most important thing, which should be tailored to the client.
However, making time to adapt to an improved cash flow management system is just as important and as helpful as spending the time to come up with strategic business moves.
Once set in place, it’s crucial to take a look at your cash flow scenario, at least once a week.
This includes regular assessments, which will put you in the best position to manage problems proactively, as they appear on the horizon.
Not Planning for Payment Delays
Cash flow is about timing, particularly timing in your sales cycle.
In a perfect world, we want to align payments with your receivables; this is to make money come in before it goes out.
However, we all know that that isn’t always the case.
So, for example, you have a system where you pay your suppliers within 30 days, and your customers pay within 60 days. All is well, up until your inflow is behind by a week or so. How will you be able to keep things rolling?
This is where having a cash cushion comes into play.
Emergency cash is your safety net, especially if cheques from your biggest business partners have been delayed for a week.
Anticipate and revise your future forecast.
Keeping Horrible Records
Keeping accurate, organised and timely accounting records makes for an easy and smooth review of your business’ financial health – which you should do.
If you don’t know how to set up your own cash flow statement, then it would be wise to pay someone to do it for you.
Update it regularly, especially when you make a sale.
There is actually specific software designed for this purpose. But your accountant should already be onto this.
If you don’t have an accountant, it’s time to get one…
This mistake shows in many different forms…
Buying that lovely table from a trade show for your office, sponsoring an event, or a new computer…
These things sound like necessary investments for your business, right?
But let’s take a closer look at that computer.
If your computer just crashed and you need to get a replacement, then you should have a replacement budget ready in place.
If you don’t, then that’s just an impulse buy.
Waiting Too Long to Ask for Help
When you stumble across a problem in your accounting, never, ever, wait until the end of the year to fix it.
Call your accountant, and if you don’t have one, then hire one.
This comes in handy, especially for making sure you never get stuck with cash flow problems…