THE CASH FLOW MISTAKES THAT CAN IMPEDE YOUR BUSINESS GROWTH
Hello readers, do you invest much time and energy in your business but don’t break even at the end of the month? Then, this article will help you manage your inflow effectively.
The cash flow problems faced by large and small scale businesses hinders the growth of the business. Cash flow is crucial to the survival of any business. As such, every business owner should have a basic understanding of their cash flow to enable them find solutions on balancing their expenditure with the inflow monthly.
Below are some of the mistakes that can ruin your business.
1. POOR BOOKKEEPING: It is essential to have a formal and detailed bookkeeping system, this will enable your company to keep track of the inflow and outflow of the business funds. Excel, Peachtree or other software can be used to track all expenses.
2. FAILING TO HAVE EMERGENCY RESERVES: If your company is working from a zero account balance, one slow transaction month could mean instant disaster or stagnation. Prepare for the unexpected, and have extra funds for emergencies. Endeavour to maintain an account balance equivalent to at least two months of operating expenses.
3. DELAY OF INVOICES AND IMPROPER PAYMENT TERMS: Ensure that your customers/clients understand and agree to the terms of payment before any commitment is made. The earlier your invoice gets to your clients/customer the sooner you get paid. Don’t leave invoices too late, because it can slow down the business cash flow.
4. NOT UNDERSTANDING THE OVERHEADS: Having a good understanding of your overheads and their payment terms helps you strategize on which bill to pay and when. As a business owner, we advise that you speak to your accountant or vendors to reduce cost when necessary.
5. OVERESTIMATING INVENTORY AND FAILURE TO ANALYZE THE CASH FLOW: Don’t tie up your liquidity to inventory. This factor can limit your operations/options thereby, damaging your month to month cash flow. Perform constant cash analysis to enable you to have an insight into the business cash flow.
P.S: “Acknowledge that, while it is important for your business to make profit, it is even more significant to determine whether your cash flow has a positive or negative impact on your bottom line”.