4 Cash Flow Mistakes New Businesses Must Avoid

  • November 27, 2018

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4 Cash Flow Mistakes New Businesses Must Avoid

Hey business owners:

Are you making any of these 4 cash flow mistakes? Check out what today's contributed post says and see how you measure up.

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There are a lot of well-known things a business must have in order to be successful:

Good ideas, a strong staff, and so on.

But one area that’s often overlooked - yet which is very crucial - is cash-flow.

While some companies think about profits, it’s cash-flow that’ll determine long-term success.

To make sure you don’t make the same mistakes that others have made, we’ve put together some common errors that new businesses typically make when it comes to making sure there’s enough cash in the proverbial cash register.

Related to cash flow mistakes:

Going Too Big Causes Cash Flow Problems

It’s possible to start a business without much cash, but everything will run much more smoothly if you do have money to call upon. The problem is that many new entrepreneurs spend the money on the wrong things and in the wrong places.

Your startup capital has to be used wisely, and since it’s highly unlikely that you’re going to have any money for luxuries, you should avoid spending anything on the things that are non-essential.

It would be nice to have a swanky office, for instance, but that’ll just eat away at the money that should be used elsewhere. Focus on the necessities until you have the budget for bigger and better things.

Understand What’s Needed

Don't be like some businesses who had to shut their doors because they ran out of money. Bad money management creates serious cash flow headaches.

But you know how this happened? It’s because they didn’t know how much they really needed to stay afloat.

Make sure you’re working out how much money you need to open the doors and trade. It’s a simple thing that might just prevent you from spending more money than you can’t afford to spend.

It’s much easier to budget properly once you know how much you’re going to need.

Letting Unpaid Invoices Pile Up

You could do everything “the right way” and still end up with cash-flow issues, all because you’re waiting for other businesses to pay the invoices that you sent to them. Because of the amounts of money that are usually involved, there can be challenges collecting debts from other businesses.

And if getting the money you’re owed is challenging, then you can rest assured that trying to keep your business afloat when you’re waiting for the money to come in is even more difficult.

As such, make sure you’ve got a system in place for getting your invoices paid.

A good idea is to offer a small discount for paying early, and making clear any charges that late payments will incur.

No Backup Cash

You don’t collect your firewood when the snow falls. You collect it when the weather is fine. A similar thing can be said about cash-flow.

Don’t wait until you’re in a pinch to look at solutions; build up your cash reserves when things are going well.

You never know when bad weather or other issues might result in a lean income for the month. When that happens, you’ll be grateful that you thought ahead and put some money to one side.

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