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Three cash flow mistakes you don’t want to make

2 min read
Cash flow problems can contribute to small business challenges. Don’t let these cash flow mistakes slow down your business.

Cash flow problems can happen for any number of reasons. For example, some businesses go through periods of negative cash flow because of seasonality or expansion. It can also be challenging to balance regular business expenses like payroll, rent or supplies with irregular growth.

 

That’s why it’s important to manage and monitor your business cash flow carefully so you can quickly act to prevent or correct a potential cash flow crunch. Here are three common cash flow mistakes that could hurt your business, and how to avoid them.

Mistake #1: Expanding Too Quickly
One of the most common causes of small business failures is financial problems that result from trying to expand the business too quickly. Some business owners see their revenues rise quickly early on when they’re continually expanding their customer base. They make the mistake of assuming that revenues will continue to rise at a rapid pace and plan for expansion based on that assumption, only to see revenues unexpectedly slow down or flatten out.

 

Sustainable growth is important to any business owner. When you’re planning business expansions such as adding staff, new product lines, or business locations make sure you’ll have enough funding to fund the expansion if your forecast changes.

 

Mistake #2: Slow Payments

A cash flow problem can also arise if your business needs to spend money early in the month while most of your payments from customers or clients don’t arrive until near the end of the month. You can easily address this potential imbalance by tightening up your payments process. Consider sending out bills more quickly and shortening your payment terms. For example, you could change your standard payment terms from net 30 days to net 15 days, so you can get money twice as fast.

 

You should also establish clear procedures for collecting overdue accounts. Even if you just have one or two customers who fall behind in paying you, they can create cash flow problems for your business. Run an accounts receivable aging schedule — a common feature in most accounting software — to understand what monies are owed to you and increase your collection efforts. Communicate with the customers with the largest invoices and get a commitment for a payment date.

Mistake #3: Not Planning Ahead

It’s financially safer to overestimate the expenses of operating your small business than to underestimate them. Unexpected expenses arise for all businesses, and you can protect yourself in the same way by having a financial safety cushion built into your budget.

 

Try to think ahead about possible extra expenses that might arise and about possible revenue dips. For example, you might think about what it would cost you to replace an essential piece of machinery that breaks down or how much your sales revenues might dip if one of your best salespeople leaves.

 

Bottom Line

To avoid problems, monitor your cash flow position carefully and regularly. Review cash flow statements at least monthly.

 

Improve your cash flow position by cutting expenses. Once your business is well-established, you may be able to negotiate better prices from suppliers if you’re ordering more supplies or ordering more frequently. Consider keeping expenses down by leasing equipment rather than buying it. If interest rates decline significantly, explore the possibility of refinancing company debt at more favorable terms.

 

Careful financial management is crucial to the success of your business, and careful cash flow management is the first step in keeping your business financially sound.

Three cash flow mistakes you don’t want to make

2 min read

Cash flow problems can contribute to small business challenges. Don’t let these cash flow mistakes slow down your business.

Cash flow problems can happen for any number of reasons. For example, some businesses go through periods of negative cash flow because of seasonality or expansion. It can also be challenging to balance regular business expenses like payroll, rent or supplies with irregular growth.

 

That’s why it’s important to manage and monitor your business cash flow carefully so you can quickly act to prevent or correct a potential cash flow crunch. Here are three common cash flow mistakes that could hurt your business, and how to avoid them.

Mistake #1: Expanding Too Quickly
One of the most common causes of small business failures is financial problems that result from trying to expand the business too quickly. Some business owners see their revenues rise quickly early on when they’re continually expanding their customer base. They make the mistake of assuming that revenues will continue to rise at a rapid pace and plan for expansion based on that assumption, only to see revenues unexpectedly slow down or flatten out.

 

Sustainable growth is important to any business owner. When you’re planning business expansions such as adding staff, new product lines, or business locations make sure you’ll have enough funding to fund the expansion if your forecast changes.

 

Mistake #2: Slow Payments

A cash flow problem can also arise if your business needs to spend money early in the month while most of your payments from customers or clients don’t arrive until near the end of the month. You can easily address this potential imbalance by tightening up your payments process. Consider sending out bills more quickly and shortening your payment terms. For example, you could change your standard payment terms from net 30 days to net 15 days, so you can get money twice as fast.

 

You should also establish clear procedures for collecting overdue accounts. Even if you just have one or two customers who fall behind in paying you, they can create cash flow problems for your business. Run an accounts receivable aging schedule — a common feature in most accounting software — to understand what monies are owed to you and increase your collection efforts. Communicate with the customers with the largest invoices and get a commitment for a payment date.

Mistake #3: Not Planning Ahead

It’s financially safer to overestimate the expenses of operating your small business than to underestimate them. Unexpected expenses arise for all businesses, and you can protect yourself in the same way by having a financial safety cushion built into your budget.

 

Try to think ahead about possible extra expenses that might arise and about possible revenue dips. For example, you might think about what it would cost you to replace an essential piece of machinery that breaks down or how much your sales revenues might dip if one of your best salespeople leaves.

 

Bottom Line

To avoid problems, monitor your cash flow position carefully and regularly. Review cash flow statements at least monthly.

 

Improve your cash flow position by cutting expenses. Once your business is well-established, you may be able to negotiate better prices from suppliers if you’re ordering more supplies or ordering more frequently. Consider keeping expenses down by leasing equipment rather than buying it. If interest rates decline significantly, explore the possibility of refinancing company debt at more favorable terms.

 

Careful financial management is crucial to the success of your business, and careful cash flow management is the first step in keeping your business financially sound.

Three cash flow mistakes you don’t want to make

Cash flow problems can happen for any number of reasons. For example, some businesses go through periods of negative cash flow because of seasonality or expansion. It can also be challenging to balance regular business expenses like payroll, rent or supplies with irregular growth.

 

That’s why it’s important to manage and monitor your business cash flow carefully so you can quickly act to prevent or correct a potential cash flow crunch. Here are three common cash flow mistakes that could hurt your business, and how to avoid them.

 

Mistake #1: Expanding Too Quickly
One of the most common causes of small business failures is financial problems that result from trying to expand the business too quickly. Some business owners see their revenues rise quickly early on when they’re continually expanding their customer base. They make the mistake of assuming that revenues will continue to rise at a rapid pace and plan for expansion based on that assumption, only to see revenues unexpectedly slow down or flatten out.

 

Sustainable growth is important to any business owner. When you’re planning business expansions such as adding staff, new product lines, or business locations make sure you’ll have enough funding to fund the expansion if your forecast changes.

 

Mistake #2: Slow Payments

A cash flow problem can also arise if your business needs to spend money early in the month while most of your payments from customers or clients don’t arrive until near the end of the month. You can easily address this potential imbalance by tightening up your payments process. Consider sending out bills more quickly and shortening your payment terms. For example, you could change your standard payment terms from net 30 days to net 15 days, so you can get money twice as fast.

 

You should also establish clear procedures for collecting overdue accounts. Even if you just have one or two customers who fall behind in paying you, they can create cash flow problems for your business. Run an accounts receivable aging schedule — a common feature in most accounting software — to understand what monies are owed to you and increase your collection efforts. Communicate with the customers with the largest invoices and get a commitment for a payment date.

Mistake #3: Not Planning Ahead

It’s financially safer to overestimate the expenses of operating your small business than to underestimate them. Unexpected expenses arise for all businesses, and you can protect yourself in the same way by having a financial safety cushion built into your budget.

 

Try to think ahead about possible extra expenses that might arise and about possible revenue dips. For example, you might think about what it would cost you to replace an essential piece of machinery that breaks down or how much your sales revenues might dip if one of your best salespeople leaves.

 

Bottom Line

To avoid problems, monitor your cash flow position carefully and regularly. Review cash flow statements at least monthly.

 

Improve your cash flow position by cutting expenses. Once your business is well-established, you may be able to negotiate better prices from suppliers if you’re ordering more supplies or ordering more frequently. Consider keeping expenses down by leasing equipment rather than buying it. If interest rates decline significantly, explore the possibility of refinancing company debt at more favorable terms.

 

Careful financial management is crucial to the success of your business, and careful cash flow management is the first step in keeping your business financially sound.