Every small business needs capital to succeed. You might be making cash flow mistakes, though, that threaten your business’s success. As many as eight out of 10 small businesses and start-ups fail because of poor cash-flow management reports U.S. Bank. Take time today to analyze your small business and correct any cash flow mistakes.
- Buy Impulsively
Whether you’re brand new to business or have been in operation for years, impulse buying is tempting. However, it can ruin your ability to buy what you need, weather slow seasons and grow.
Curb impulse buying when you create a budget and follow it. Before you buy anything, analyze its purpose. Also, consider how often the item will be used and if you can find it cheaper somewhere else. As an example, insurance is a necessity, but shop around for the best rates on the coverage you need.
- Don’t Get Paid in Advance
When you allow your customers to pay after you perform a service or provide a product for them, you risk not getting your money. Plus, your cash is tied up in the materials needed to make their product.
Always collect a portion of the total cost upfront, and use that cash to pay for materials. Be sure to collect the full payment before you make the final delivery, too.
- Let Late Payments Slide
You likely have a relationship with most of your customers and may not push them to pay past-due invoices. However, if you don’t receive payment for the good and services you provide, it won’t take long for you to go out of business.
Secure your business’s future when you collect payments on time. Set up payment reminders, charge interest on past-due accounts and require invoices to be paid in full before you deliver further goods or services. Check into collections policies, too, as you protect your bottom line.
- Don’t Keep Enough Cash on Hand
You never know when an emergency will occur. Plus, you need to prepare for slow times.
Set aside adequate cash. Ideally, a cushion of three to six months of operating expenses could help you stay in business if slow sales or an emergency occurs.
- Make Unrealistic Revenue Projections
As a small business owner, you may be optimistic about future sales. Creating unrealistic projections could cause you to overextend yourself now, though.
Be honest and objective when predicting your revenue. Use accurate expense and sale records as well as past data when you calculate future revenue.
Your small business’s success depends in part on your cash flow. Stop making these mistakes today as you pave for the way for a positive future. For assistance, contact your business mentor or local SCORE chapter.