Avoid These Mistakes and Manage Your Cash Flow Better

No matter how great your business model is, you can’t survive if you can’t manage your business’ cash flow. In fact, research has found that as many as 82 percent of small businesses fail due to poor financial management.

So here we have listed the 5 most common financial management problems for you to avoid.

1. Failure to plan

Many small businesses do not possess a working budget and cash flow forecast that is rolled over on at least a quarterly basis, resulting in poor decisions based on guesswork. By planning a solid budget that is seasonalised and presented on a month by month basis, businesses will be able to track their performance and make informed financial decisions

2. Overestimating future sales

While optimism is critical for a business owner, letting it compromise your objectivity can be dangerous to your cash flow. For example, while your sales volume may increase over the Christmas holidays, expecting them to double is a little unrealistic. As such, it is crucial to complete objectives and realistic sales forecasting based on historical evidence and real numbers. This information will help you to develop more realistic future sales projections.

3. Not keeping a cushion of cash on hand

If your company is working from a zero account balance, one slow sales month could be instant disaster. That is why it is important to have a cushion of savings on hand. An easy way to achieve this is by maintaining an account balance equivalent to at least two months of operating expenses.

4. Slow to collect debts

While chasing debts can be time-consuming, it should be held as a priority for businesses. For debtors that have a history of late payment, send a reminder before the due date for payment instead of just after. Don’t be afraid to chase up late payments and, if necessary, use debt collectors.

5. Lacking clear performance metrics

Many small business owners fail to monitor financial and non-financial performance. By identifying key areas in your business and how they are performing in those areas against the goals of your business and industry averages, you can use that evaluation to identify areas of improvement and set measures to improve performance.

If you would need expert business and financial management advice, please don’t hesitate to get in touch with us at Advivo on (07) 3226 1800 or you may use our contact form.