Any small business owners will know that cash is key to a business’s survival. On the surface, it’s enough to know that as long as your income exceeds your outgoings, the business will be ok. But what are some of the common cash flow mistakes that small business owners make? I’ve rounded up my Top 10 common cashflow mistakes here.
Delaying invoicing: Sending invoices late or not at all can cause delays in payments, which can hurt cash flow. Ensure you have a system in place to send invoices promptly.
Not setting payment terms: Without clear payment terms, clients may take longer to pay. Establishing payment terms in advance can help you get paid faster.
Relying too heavily on one client: Dependence on a single client can be risky. If they experience financial difficulties, you could be left with a significant shortfall in cash flow.
Not tracking expenses: Failing to track expenses can lead to overspending, making it difficult to manage cash flow. Ensure you keep accurate records of all expenses.
Overestimating revenue: Overestimating revenue can lead to poor cash flow management. Be realistic when forecasting revenue and keep a close eye on actual income.
Ignoring cash reserves: It’s important to have cash reserves set aside for unexpected expenses or slow periods. Not having cash reserves can make it difficult to manage cash flow.
Not chasing payments: Failing to chase overdue payments can lead to cash flow problems. Ensure you have a system in place for following up with late-paying clients.
Mismanaging inventory: Holding too much inventory can tie up cash flow, while not having enough can lead to lost sales. It’s important to manage inventory levels carefully.
Ignoring expenses associated with growth: Expanding your business can be costly. It’s important to factor in expenses associated with growth when managing cash flow.
Failing to plan for taxes: Taxes can have a significant impact on cash flow. Ensure you have a plan in place to cover tax liabilities when they arise.
Avoiding these common cash flow mistakes can help you manage your business’s finances more effectively. By staying on top of cash flow, you can ensure your business remains financially stable and successful.