Even the most profitable of businesses can find it difficult to survive with no plan to manage your cash flow. However, if you understand the kind of mistakes you have to avoid while managing your cash flow you can reduce your chances of failure to a great extent.
Here is a lowdown on the most common mistakes that business owners tend to make when it comes to managing their cash-flow:
Being over-optimistic about future sales
While it is good to be optimistic, it is also important for business owners to be realistic with their expectations, when it comes to predicting future sales volumes. It is very important to base your sales forecasting on real numbers and historical evidence. If you don’t have actual past revenue data from your business, you can consider that of the other businesses in your industry in order to track trends and predict future sales. Working with a mentor from within your industry can prove to be very useful during the initial phase of your business.
Engaging in impulsive spending
Most business owners go by the saying – it takes money to make money. But during the first few months of business, this belief can lead many rookie entrepreneurs towards gross overspending. You need to be very cautious with your startup expenses. Spend only on things that will benefit your company’s profitability. Every dollar that you spend on your business must be evaluated carefully while keeping an eye on your bottom-line. Try not to delay your break-even point by spending impulsively.
Not being proactive about collecting payments
Unpaid invoices from your clients can be the number one source of your cash flow problems. If you don’t have a proper plan or schedule to collect your receivables you may not be able to stop yourself from going into a dangerous cash-flow situation. You need to have a collection policy in place with late-payment penalties that push your clients towards paying their invoices before they become overdue. Have an internal timeline to send out invoices and payment reminders. Make it a point to incentivize customers who pay early by offering discounts and rewards.
Not sticking to a cash-flow budget
Tracking your day-to-day expenses is a must if you want to manage your business cash flow efficiently. Have a cash flow statement to monitor the inflow of your revenues and the outflow of your expenses regularly. If you have more money going out than coming in, you will have to look for funding sources that can help you slide through the difficult periods.
A merchant cash advance can be a more reliable option when compared to bank loans, especially during such cash flow emergencies. With lesser eligibility restrictions, MCA providers provide funds within a very short span of time. Many merchant cash advance providers may, by themselves, get in touch with you through merchant cash advance leads. Make sure you understand their charges, fees, rates, and terms before you sign up with any of them.
Not having a cushion of savings
Even with all the safeguards in place, you can find it difficult to manage your cash flow, if you don’t have that cushion of cash on hand. A zero account balance is no good when it comes to managing your business. Make it a point to maintain an account balance that covers at least two months of your operating expenses, at all times. This way you will always have reserves in place to safeguard yourself from emergencies.
Cash flow management has a lot to do with running a business efficiently. Always have a reliable funding source on hand so that you know where to go when you are in a cash flow emergency. Talk to a few merchant cash advance providers who contact you via merchant cash advance leads and choose the one who offers you the best terms.