Ask any startup owner what one of their biggest fears is, and there’s a very good chance that you’ll be met with a cash flow response. Put simply, this is a silent killer for businesses – it’s something that can sneak up on you even when it looks like you are riding the highest profits wave of your short business life.
Fortunately, cash flow mistakes can easily be avoided. A lot of the time business owners fall into these pitfalls because of pure inexperience and through the course of today’s post, we will take a look at three of the biggest mistakes which tend to contribute the most to a cash flow crisis.
Mistake #1 – Not being proactive about money owed to you
Considering the fact that business is all about dimes and dollars, this first mistake might surprise some people. However, an alarming number of startups are simply not proactive enough when it comes to collecting money from customers.
This is the reason why it is crucial to install credit card processing systems from the outset; as this is something that can at least encourage you to ask for money at the time a sale is made.
If you are in the type of industry where invoicing is par for the course, at least insist on late-payment penalties when you issue one. Most clients will leave it until the very last minute before making a payment, in a bid to cure their own cash flow ailments, and if you don’t have any penalties in place for late payment you are just asking them to delay things.
Mistake #2 – Going overboard with startup expenses
A startup is an exciting time; it’s the start of something new. At the same time, it’s not necessarily a license to spend money. We’ve all heard the phrase “speculate to accumulate”, but there are limits to this advice.
Overspending is a mistake that can hurt any startup and as soon as you start to go down this avenue, you immediately need to make more money to recoup those initial costs.
When we talk about unnecessary costs, there isn’t a definite list you should turn to. What we will say is that you will be approached by a lot of “consultants” during the early phases, who are desperate to take your money. Generally, these are expensive and an utter luxury, so avoid like the plague until you are at least established.
Mistake #3 – Overestimating your sales
Everybody likes to be optimistic, but when it comes to forecasting you should always bear in mind the actual effect on your cash flow. If you predict sales that are, in short, completely unattainable, it’s going to mean that your business isn’t going to be taking in nearly as much as your numbers suggest. Ultimately, there’s a chance that your outgoings are going to overtake your incomings.
Make sure you forecast based on facts and leave all opinions out of the equation.
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