No matter how fantastic a business model you have made and how wonderful you think your idea is, you are not going to get very far unless you have a robust cashflow system in place.
But so many small businesses end up failing because they have simply not put in enough time and attention into ensuring that money keeps flowing into their company on a regular basis.
In this blog post, we are going to list some of the worst cashflow mistakes that small businesses can make so that you don’t end up falling into the same traps yourself.
Overestimating Future Sales
Of course you want to be optimistic when you are starting a small business, but this doesn’t mean entering a fantasy land in which you overestimate your future sales in a big way.
Your sales goals should be objective and realistic as much as possible. This can be especially difficult in your first few years of business as you don’t have a great deal of experience to draw upon.
Ideally, you will have a good business mentor who can offer you some advice and steer you onto the right path.
Overspending in the Startup Phase
Again, this often comes down to excitement and too much enthusiasm, but just because things have started well in your business does not mean that you should overspend in the startup phase.
You should be looking to conduct a cost-benefit analysis on every single purchase to ensure that each one is going to add value to your company.
You should also create a realistic budget and make sure that you stick to it. A level head goes a long way towards greater levels of business success.
Chase Up Unpaid Invoices
Even though you want to establish good business relationships to start off with, this does not mean that you should be giving them a free ride. You need to be proactive in managing your invoices.
If you need a little support, Bcashflow Positive is one of the largest invoice factoring companies in Australia. If your clients think that they can get away with not paying, some of them are bound to do so. You may even want to incentivise your clients to pay on time by offering discounts for early payments.
Maintain a Safety Net
The world of business is not one which is predictable. There are bound to be months in which you don’t do quite as well as others.
To be on the safe side, you should maintain a cash windfall of at least two months worth of operating expenses to ensure that you have a reserve in place to get things back on track should you need it.
Now that you know what four of the worst cashflow mistakes of a small business are, you can avoid repeating them in your own company. This way, you will increase your own chances of success significantly.