The Common Cash Flow Mistakes of small business owners
Ah, the beauty of cash flow it’s like the lifeblood of your business, keeping everything ticking along smoothly. Cash flow hiccups tend to be a leading cause of small business woes, so it’s smart to give it some TLC. We’ve got a rundown of the usual suspects when it comes to cash flow blunders, so you can sidestep these pitfalls and keep your business’s wallet happy.
The Budgeting Slip-Up
Sometimes, us small business owners can get a bit too starry-eyed about the income and tend to forget about the expenses at the outset, and that can lead to some awkward cash flow tangles. When in doubt, it’s better to lean towards a bit of precaution (for sales) and overestimation (for the expenses) this way you will always have a little buffer there to fall back on.
If you think your business is going to be the next overnight sensation, you are not alone, no one goes into business thinking they are going to be a flop, but make sure you do things right, this way you will be one of the lucky ones who will succeed. Plot out a realistic timeline of income and expenses, showing your profit at the bottom. Remember, businesses have seasons, retail will always be at its peak around Christmas, while hospitality tends to peak in the summer months, so factor in those highs and lows.
The Forgotten Cash Flow
Besides your regular budget, it’s wise to have a separate cash flow. Unlike a budget this will show exactly when you’ve got money coming in and going out, so you can play money magician without breaking a sweat.
This will take into account when you receive your income, bearing in mind the terms you give on your invoices (30 days, 60 days. Ideally no days!) having money stuck in invoices is no good for anyone’s cashflow! And when you actually pay your bills, not when you receive the invoice, but when the cash leaves your account.
The bottom line being the cash you have left at the end of the period. With this vital tool you can make sure you have cash on hand to keep your show running smoothly.
Those annoying late payers.
Here’s a simple rule for the money game: get paid on time. While you can’t fully control it, there’s a trick or two up your sleeve. First, when signing up a new client, sort the money aspect straight away.
Also, don’t be a procrastinator when it comes to sending invoices. Neat and correct invoices mean no unnecessary back-and-forth it’s like presenting a perfectly plated meal.
And hey, if someone’s playing hard to get with your cash, don’t hesitate to give them a nudge. Maybe even add a little fee for those latecomers – just give them a heads-up first (this is where T&C’s come into their own).
The Cash Cushion Conundrum
We always recommend having a reserve, this covers those sudden costs that like to pop in unannounced. Be ready with your cash reserve (saved from all of those expenses we over estimated when creating our initial budget) it’s a rainy-day fund that helps you glide through those unexpected downpours without drowning in debt or stress.
Wrap-up:
Managing cash flow is so important. Get business planning smart and set up a budget that doesn’t go wild and get your cashflow in place to track it. Remember, cash flow and profits are like cousins, not twins. So, keep a separate cash flow AND a budget. When in doubt, remember that a seasoned accountant is your go-to for this integral part of your business plan. Keep the cash flowing, and your business will dance to a happy tune!