Five Cash Flow Mistakes That Will Kill Your Business
Financial planning for SMEs: what NOT to do
There is a plethora of advice out there for small business owners. It’s easy to drown and be overwhelmed in the options, the potential paths to take, the must-dos and must-haves. Particularly when it comes to managing finances and cash flow, everyone will have a different opinion about what’s best.
For this reason, we’re coming at it from the other direction: what NOT to do! Sometimes, understanding what to avoid can be more valuable than all of the rest—so read on and chart your course around these reefs.
Being shy about chasing payments
Your accounts receivable are crucial to your cashflow, so manage them ACTIVELY! Following up on your invoices can often be pushed to the bottom of your to-do list (that’s a task for a VA if we ever saw one), but it’s important to do so. Sometimes, a nudge is all that’s needed. You can often automate payment reminders in your job management system to get this done without any effort on your part.
For more on how you can get paid on time, check out this blog post on the topic.
Overestimating your sales
A cash flow forecast that’s based on overinflated sales income is destined to fail. Your forecasting should be based on historical data, the general state of the economy, and sales cycles—this can include growth trends but be conservative with this. Dreaming big is great; using those big dreams as financial fact is not.
Ignoring seasonal fluctuations
When planning for cash flow month-to-month, it’s important to remember that sales can fluctuate throughout the year. If you’re basing your calculations on a higher sales month, you might be left foundering during a quiet season. Take these trends (both industry-wide and specific to your business) into account and consider planning big purchases during your busier times.
Confusing revenue and profit
Increased revenue does not always mean extra cash to throw around! It’s easy to see more money coming in and get in a spending state of mind, but that can easily mess up your cash flow.
It’s important to always look at revenue and expenses as part of the same picture. Often, more incomings are the direct result of more outgoings, so do your homework before you assume there’s wiggle room in the budget.
Slipping on your tax obligations
With monthly, 2-monthly, or 6-monthly GST returns to be filed and the end of the financial year forever creeping up on you, it’s easy to get behind on paying taxes. With this unstable foundation, the entire house of cards can all too easily come crashing down!
Staying ahead and organised when it comes to tax will make it much easier to plan and perfect your cash flow. Get your books in order and make sure you have a great accountant on your team—there’s nothing like the smug feeling of being up to date with your taxes.
With a little knowledge of what not to do, we wish you the very best in your cash flow endeavours. The financial side of business is rarely a favourite for trades and service business owners, but it’s a crucial aspect of success. Having your cash flow under control is unbeatable peace of mind!
If you need some help with bookkeeping and other administrative tasks to help you stay ahead of the game, get in touch with the Released team!
