Cash flow problems are one of the biggest reasons businesses fail, but with the right tools and planning, you can avoid making mistakes that leave your business strapped for cash.
Let’s look at some of the biggest cash flow mistakes that businesses make and how to avoid them.
Every business will make cash flow mistakes. It’s just part of the learning curve when running a business. However, there are some cash flow issues that businesses can avoid. Here are some of the most common types of problems companies face with their cash flow.
One of the biggest cash flow mistakes a business can make is failing to monitor their cash flow. If you’re not keeping an eye on your cash inflows and outflows, you can easily find yourself running out of cash.
Businesses often run into issues when they spend money they don’t really have. Unfortunately, many companies don’t even realize they don’t have the cash for a purchase because they’re not monitoring their cash flow properly.
Let’s say that you complete an order for a customer and send out an invoice. You record the sale for accounting purposes, but until that customer pays the invoice, you don’t have that cash in hand. It may look like you do on paper, but your bank account says otherwise.
On the other hand, some businesses simply don’t manage their expenses properly and wind up spending more than money than they generate. When your cash outflows exceed your cash inflows, you’re going to eventually run out of cash.
Many businesses also run into issues with their cash flow because they fail to consider the seasonal nature of their operation. Most businesses have busy and slow seasons whether they realize it or not.
If you’re not planning ahead for your slow season or taking steps to improve cash flow during this period, your cash flow may run into the negative.
Businesses that aren’t conservative with their cash flow forecasts may find that they’re overestimating their future sales volumes.
If you anticipate or expect future sales volumes to be greater than they truly are, then you’ll run into cash flow problems.
Some business owners make the mistake of confusing cash flow with profit. Here’s the difference between the two:
Cash flow can be negative or positive, depending on whether there is more money coming into the business than going out. But positive cash flow isn’t necessarily an indication of a profitable business.
Mistaking cash flow with profit is one of the many cash flow problems that businesses face.
Every business must pay taxes, whether it’s monthly, quarterly or annually. Missing tax deadlines will lead to costly penalties and interest. Unfortunately, many businesses make the mistake of failing to meet tax deadlines or not paying all that is owed. Businesses, especially as they grow, should be working with an accountant or tax professional to ensure that they are paying their taxes on time.
What happens if a business runs into cash flow problems? Depending on the severity of the problem and how long it’s been going on, the consequences may be catastrophic.
Problems with cash flow can lead to:
Some businesses are forced to shut their doors for good because they run into serious problems with their cash flow management. However, short term cash flow problems may only cause minor operation delays or cause a business to take on more debt to make up for the lack of funds.
Now that you understand the biggest mistakes businesses make, let’s look at how to solve cash flow problems.
One of the best ways to avoid issues with your cash flow is to monitor your cash inflows and outflows. Monitoring and managing your cash flow will ensure that you’re not spending more money than you’re generating. And if you find that your expenses are outweighing your cash inflows, you can take steps now to bring your cash flow back into the positive range before it’s too late.
Another effective way to keep your company’s cash flow problems at bay is to create forecasts and projections. Cash flow forecasts can help you predict what your cash flow will be in the future and whether you’re going to run out of cash.
Forecasts and projections can help you:
Businesses can also cut back on expenses. Take the time to really analyze your expenses and reduce or eliminate wherever possible.
For example, you may be able to negotiate lower rent or better prices on your supplies or materials. Even just a small reduction can make a big difference in your cash flow over the long term.
Additionally, there may be expenses that are truly unnecessary and can be eliminated entirely. Removing them can help improve your business’s cash flow immediately.
To avoid problems with your cash flow, you need to manage and monitor your cash flow. That’s where Cash Flow Frog can help. Using the Cash Flow Frog, you can create cash flow:
You can also create what-if scenarios to see what will happen to your cash flow if you make certain decisions. In addition, the app integrates with your preferred accounting software, making it easy to create accurate forecasts with the most up-to-date data.
Cash Flow Frog is your one-stop-shop for accurate cash flow management.
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