5 Cash Flow Mistakes That Could Kill Your Business

Small business owners are often overloaded with tons of activities revolving around their business, and they have very little time left for managing cash flow or keeping track of its finances. On the other hand, mismanaging your company’s funds might lead to total failure of your business.

In this article, I run through some of the deadly cashflow mistakes that can really hurt your business. Find out if you are making one of these mistakes and learn how to avoid these.

1) Overestimating future sales

Too many business owners overlook past data and market trends, riding along on intuition and pure optimism alone. You may be smart, but you’re not a psychic. You need to be able to accurately calculate the value of your company and predict your profit margin in order to run a successful business. By applying quantitative forecasting methods, you can use past revenue data from other businesses in your industry as a foundation for tracking trends and anticipating future sales.

2) Incorrect Calculation of Profitability

It's not at all uncommon for a business owner to feel like they're running a successful company. You might have tons of revenue coming in, lots of new clients and a great reputation in your industry. Having expenses that match (or even exceed) your revenue means you're not making any money. If your cash-flow management strategy doesn't include setting aside some of your revenue as profit, then what's the point?

3) Late Payments Or Overdue Amounts

Letting your customers pay late is not viable for your business. You must keep track of unpaid invoices. Not only that, but you also need to be proactive about collecting these payments. Don’t let your clients take advantage of you. If you rack up too many unpaid invoices, you are bound to experience a serious lack of cash flow. It may sound trivial, but the fact is, when your customer delays the payments, it would be difficult for you to pay to your own suppliers. Also, you don't have to offer 30-day or 60-day terms, you know. You can make your terms whatever works for your cash-flow management needs.

4) Spending recklessly

They say “it takes money to make money,” and while this is often true, there is certainly a limit. Budget planning is essential. Make sure you are spending your resources on expenses that will benefit your company’s profitability. By implementing a policy that requires all expense and purchase requests to be accompanied with a justification document that a manager has to review, any unnecessary purchases can dramatically decrease. Instead of tying up cash on purchases that are not mission-critical, the cash can be used to grow the business.

5) Improper Management of Taxes

Tax is a fine for doing well. Sounds funny but it is true. Taxes are statutory obligations and you have to have the funds to pay for them so this has to be factored into your expenses whether you like it or not. Moreover, it has to be paid whenever it is due. Whenever you miss the deadlines, it can attract interests and penalties that can influence the cash flows.