Cash Flow Mistakes To Avoid

Running a successful business is as much about not making mistakes as it is about doing the right things. This applies to cash flow as much as anything else. Cash flow is crucial to the smooth running of your business and, in some situations, its ultimate viability. Here are 10 cash flow mistakes that you should avoid.

Cash Flow

 

  1. Overestimating Future Sales Predictions

 

You sales predictions should strike a balance between being realistic, and being ambitious enough to keep everyone motivated. This will result in a figure that is much more achievable, and will allow you to take spending decisions that you can afford.

 

  1. Impulse Spending

 

This can apply in a range of business situations, but it is particularly problematic with new businesses and businesses going through diversification or expansion strategies. In everything that your business buys you should ask do you really need it, and can you get it cheaper.

 

  1. Stocking Up

 

Buying too much stock or supplies can starve your business of cash. When your business has no cash the savings that you made buying bulk will seem insignificant compared to the complications that they caused.

 

  1. Not Chasing Overdue Invoices

 

You must have a comprehensive and strictly followed set of procedures for ensuring your clients pay their invoices on time.

 

  1. Giving Credit To Customers Who Are Too Big A Risk

 

In an ideal world all your clients would pay their invoices, but in reality this doesn’t always happen. The decisions you face when clients don’t pay are to write off the debt, take a proportion of it, or spend resources trying to recover it. This will take away any profit you might have made on the sale. It is therefore usually better to potentially lose the sale by not giving risky customers credit.

 

  1. Paying Invoices Before They Are Due

 

Many businesses pay the invoices of the people that are shouting the loudest. This is an understandable approach for an easier life, but it is not the best way to run your business. You should only pay invoices when they are due, and you should pay on a schedule that suits your needs.

 

  1. Not Preparing Cash Flow Forecasts

 

When you don’t have a cash flow forecast you are taking decisions blind, and that is incredibly risky for any business.

 

  1. Recruiting Too Many People Too Quickly

 

The temptation when you are expanding or growing is to start bringing on new people to meet the demand and continue the rate of growth. But for most businesses wage costs are one of the biggest expenses. They are also an expense that can quickly spiral out of control, so keep a tight lid on it, while giving your business the space it needs to develop.

 

  1. Not Have Cash Reserves

 

You should also try to build up a cushion of cash that you can use on “rainy days” to see you through temporary difficulties with cash flow. Access to a line of credit is a good substitution, when used prudently and properly.

 

  1. Not Getting Help

 

Finally, not getting help when you are struggling with cash flow can result in you getting into further difficulties. An accountant will be able to give you practical advice, and help you make changes that will improve the situation.

 

If you would like more information on cash flow, or any other part of your business, you should contact Gilroy Gannon today.

Posted in Accounting, Business Finance, Small Business.