8 Common Cash-Flow Management Mistakes Small Businesses Make

March 29, 2016

Cash-Flow Management

The cash going in and out of your business is what keeps it running. According to an article from CNBC.com, the number-one reason for small-business failure is lack of cash. Cash-flow management is a critical element to business survival. Here are eight common mistakes to avoid when it comes to managing your cash flow.

8 Cash Flow Management Mistakes to Avoid

1. Overestimating Future Sales

Whether your business is new or well-established, you’ll always want increased revenue. Although it’s good to set benchmark goals for yourself, make sure that when it comes to planning your cash-flow budget, you’re not overestimating your sales. Sales estimates should be realistic and achievable. This will help keep your cash flow positive and on budget.

2. Over Spending

Give yourself an expense budget that is reasonable and realistic. Be sure to include some room for unplanned expenses such as repairs. Overspending can easily lead to a negative cash-flow balance.

3. Impulse Spending

Just because something is a good deal or a unique product or service for your business doesn’t mean that you should buy it. Do your research. Make sure that the purchase is necessary. Most importantly, make sure the amount fits in with the cash-flow budget you created to keep your business on track.

4. Expecting Invoices To Be Paid On Time

You signed $100,000 in new contracts, all of which have 30-day pay terms. That sounds great, but remember, that doesn’t always mean your invoices will be paid on time. If you have slow-paying customers, it’s hard to know when to expect payment. If you’re experiencing delays in payments, you may want to consider invoice factoring to help keep your cash-flow statement balanced.

5. Not Going After Past-Due Receivables

Often small businesses don’t have the time, people or resources to effectively track down past-due receivables. This can easily cause your cash-flow statement to end up negative. If your business doesn’t have time to follow-up frequently on these accounts to make sure you will get payment, it might be time to outsource some of the work. Many factoring companies, including Scale Funding, offer added back-office support service such as collections, to help you collect on your invoices.

6. Not Creating a Cash Flow Budget

Creating a realistic cash flow budget is an important part of managing your business. Create a cash flow statement that projects your estimated revenue and expenses. Avoid the mistakes above like overspending, impulse spending and overestimating your sales so that you can keep your business on the budget you created.

7. Not Having a Cash Reserve

As a small business you can’t expect your revenue and expenses to be the same from month-to-month or year-to-year. Your customers will pay their invoices at different times, your sales will go up and down and you’ll have some unplanned expenses along the way. It’s always a good idea to have some cash on reserve just in case these unexpected and uncontrollable situations happen to you.

8. Not Having Financing Solutions for Gaps in Cash Flow

Whether you’re a seasonal business or in an industry where customers tend to pay slow, having a solution to bridge the gap so your business maintains a steady cash flow is important. Accounts receivable financing, invoice factoring, and business loans are just a few options. Do your research to see which one is right for you.

Do you need help with your cash flow?

Scale Funding has been providing creative finance solutions like invoice factoring since 1994 to help businesses with cash flow all across North America. Call 800-707-4845 to see how Scale Funding can help grow your business and improve your cash flow.