Meticulous financial management is one of the pillars of a well-functioning small business, as it allows you to keep the proverbial ship afloat, and most importantly, plan and execute your long-term growth strategy. The same can be said for businesses of all sizes, because without finance management and regular investments into the company, you cannot hope to stay competitive in the ever-evolving consumer market.
That said, managing your finances successfully is not just about focusing on the things you’re doing right, or the things that come easy – it’s also about avoiding the common pitfalls that tend to drive businesses like your own straight into the ground. Here to help you avoid this are the five major cash flow mistakes you can’t afford to make.
Spending way too much during the start-up phase
The road to long-term financial independence in the modern business world starts with you making the right financial decisions during the planning, preparation, and implementation phases. Engaging in way too much impulse spending in the start-up phase, however exciting it is to buy the sleekest office chairs, is a common mistake many inexperienced entrepreneurs make, one that could cost you your business down the road. Instead, you need to scale back your spending and invest in a smart and calculated way.
In fact, you should work towards embracing a completely frugal mindset if you are to minimize the initial expenditure and lay the foundation for financial stability in the months and years to come. In order to start generating revenue as soon as possible, you will need to focus on the bottom line. Consider every investment as it relates to your customers and your brand, and make every expense work towards lead generation, conversion, and brand building.
Being overly optimistic regarding future sales
As an entrepreneur and a business leader, you are destined for great things. Provided that you take a calculated approach to sales forecasting and demand sensing. These two processes are not one-off tasks that will give you all of the insights you need to grow, instead they are long-term processes that require constant monitoring in order for your brand to keep up with the competition, as well as the latest consumer trends in your industry.
By all means, you have the right to be optimistic about your future – after all, a positive mindset has a higher chance of yielding the desired results. However, keep in mind that you must complement a positive mindset with a detailed sales forecast that is rooted in thorough industry research. Be sure to analyze the current sales trends in your niche, estimate the sales volumes of your competitors, and monitor the authority sources to catch every early indication of an impending industry shift.
Waiting on your clients and customers to pay
Probably one of the grandest mistakes that entrepreneurs inadvertently make is waiting on their clients to meet their financial obligations towards the brand. If there is a single lesson you can learn from experienced business leaders, it’s that successful cash flow management does not rely on your clients’ financial capabilities. Why? Because people might not want to pay, and because they might not be able to pay.
If you try to force them to pay, you risk losing them for good, however, you need the money to keep the lights on, which creates quite a predicament. This is one of the reasons why debtor finance like this has become the most reliable and popular financing method for businesses around the world in recent years, as it allows the company to maintain its cash flow without jeopardizing its relationship with clients and customers. Always have such a contingency in place in order to keep the business running when you’re having trouble with invoicing.
Skipping day-to-day budgeting and finance management
Every business, big and small, needs to have a cash flow budget. Successful business finance is all about tracking the day-to-day account payables and receivables in order to gauge the brand’s performance in the market, manage every department efficiency, make accurate financial forecasts, and make the right investments that will spark future growth.
To achieve all of these goals, you should use a detailed cash-flow spreadsheet that will give you a comprehensive overview of our company’s daily finances. With these insights in hand, you will be able to make actionable reports, and cross-reference previous financial statements to identify cash flow trends, and potential weaknesses.
Failing to kick-start an emergency fund
And lastly, you should always have a financial safety net. During the slow and arduous growth stages that could last for months on end, business leaders can find it quite difficult to set aside any amount of money for those rainy days, yet it’s imperative that you do. There is no telling what the next quarter might bring, how many new competitors might step into the fray, nor how in-demand your products or services might be. Make sure that you have an emergency fund at the ready to carry your business through the toughest months of the year.
Cash flow management is one of the most important elements of a well-functioning business, but aside from all the great things you’re doing, you also need to avoid the common mistakes that might put you under. Keep these tips close at hand, act on them quickly, and you should have no problem future-proofing your business for years to come.