Ask small business owners what keeps them up at night, and the majority of them will tell you cash flow is the reason they toss and turn. Some of the most common cash flow mistakes made by business owners are easily avoidable; others are harder to see and often feel like getting hit in the back of your head with a two-by-four.
Avoid These 3 Cash Flow Mistakes
No Financial Records
It sounds so simple, but I’ve seen firsthand too many business owners that do not have any financial records for their company, not even Quicken! If you want to run your business into the ground, the fastest and easiest way to do so is by not keeping track of your receivables and payables. It’s imperative to know that you can pay your fixed bills every month and that you have a handle on variable expenses. Otherwise, it is only a matter of time before your business is struggling to stay afloat. No bank or other financial institution will agree to lend you money or invest in your company without current financial records. Do yourself and your team a big favor and be meticulous with your financial statements. It’s a prerequisite for avoiding cash flow issues.
Not Staying on Top of Receivables
Clients and customers rarely volunteer to pay their bills. You often have to remind them with emails, phone calls, and even snail mail letters to prod them into sending you money. The easiest way to put your company into cash flow hell is by not staying current with your invoices. Be the squeaky wheel! If your terms are net 30 and a client is at 31 days, send them a note. Find out the status of your invoice. More importantly, don’t think that if you nudge the customer, they might take their business elsewhere. Any business that balks at paying their invoice in a timely manner might not be the type of client for you. There are certain instances when a customer cannot pay their bill, or there is miscommunication about when a bill was due. Let these instances be the exception and not the norm.
Paying Creditors When You Don’t Have the Money
Can you see the domino effect of not having financial records and not staying on top of your receivables? Picture this scenario: You have $5,000 in your checking account and know that customers owe you money. Today, a critical piece of equipment in your business broke down and will cost $4,500 to replace. You pay the bill without looking at other payables coming due or the status of your receivables. Upon further investigation, you realize that critical expenses (e.g. rent, utilities, and payroll) are due this week, and your big client just emailed you that they forgot to put the $25,000 invoice into the system and you won’t have your check for another 30 days. What do you do now? Hello more sleepless nights!
If you’re like most business owners, you have put your heart and soul into building a company. Don’t let poor financial decisions cripple the work you’ve done to date. By addressing the three most common cash flow mistakes above, you will greatly reduce the chances of running out of money. Start today!
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