9 cash flow mistakes to avoid as a small business owner
Cash flow is more than the money you have in your account at the end of the week. It’s crucial for covering expenses, repaying debt and planning for growth. Here are some common cash flow mistakes to avoid – and how to stay on the path to success.
1. No budget, no plan
Without a cash flow plan and a business budget, it’s almost like flying blind and missing the signs about upcoming problems. Take the time to make a plan to forecast your revenue and expenses so you can head off any cash flow issues before they arrive. Most importantly, you’ll be prepared for seasonal business cycles and any one-off costs that arise.
2. Impulse buys
Once you have a plan in place, avoid the temptation to make snap decisions. Running your own business means you always have the final say – but it’s still important to think through the pros and cons of every expense – it may even help to make a list. For example, you may see a great deal on a new printer, but if it won’t improve your bottom line then it’s probably not worth the purchase.
3. Putting your head in the sand
For cash flow issues caused by tax debt, bills piling up or missed loan repayments, the best move is to always stay on top of things. Most suppliers will be more than happy to work with you on a payment plan so keep the conversation open and flowing.
4. Letting invoices and bills slide
Not following up on invoices can stop your cash flow in its tracks. Make it a habit to review invoices before they’re overdue, and check your online accounting system to see when reminders are sent. Some programs default to sending an invoice reminder seven days after it’s overdue.
In the same way, letting your own bills go overdue can affect your cash flow. If you’re smashing your revenue goals for the month, don’t let a bunch of bills falling due (or overdue) at once paint a different picture and risk you being known as a late payer.
Prospa tip: Have you reviewed your payment terms and conditions lately? Smart terms can mean getting paid sooner and spending less time on admin.
5. Too much stock
It’s a fine line between having the right amount of stock and holding too much. If a stocktake reveals old stock is taking up space, look into giving customers a discount on bulk orders or holding a sale, or find out if unusable stock can be written off.
Prospa tip: Clearing stock means freeing up space. If you get the stock balance right, you mightn’t need to pay for that extra storage.
6. Inadequate accounting software
Are you looking for ways to simplify administration processes so you can focus more time into growing your business? It may be time to move into an automated system that lets you easily send invoices, make payments and run reports on your financial health.
Low-cost cloud accounting systems are widespread and can manage your small business finances. Start by making a list of what you need, and then look for the system that works for you. Paying a monthly subscription fee can be worth it if it saves you time and helps you get invoices paid.
7. High overheads
When you’re busy (like most small business owners are), it’s easy to accept ongoing costs. After all, you don’t have the time to question them! But regularly looking at your overheads and fixed costs could reveal unexpected ways to save – and keep you in the black.
Speak to your accountant or financial planner and ask them to look at costs like your rent and utilities. For example, if your business has shifted to mostly online sales, you may not need a shopfront anymore and can scale down to an office space.
8. Outdated payment systems
In this day and age, customers want convenience, so try and implement strategies to make it easy for them to pay invoices. Send your invoices online (rather than via post) and outline links to payment options. Ensure you include a credit card option that’s easy to integrate with your accounting system and gives them a choice, so your cash flow isn’t held up by theirs.
Prospa tip: Cheques are like the money equivalent of a fax machine. They’re a time-suck you don’t need. Some people will insist on using them, but if you remove the option completely, they’ll find an alternative.
9. Negative profit margins
It’s normal for businesses to have some products or services they make little profit on, or that act as a ‘loss leader’. These cost you money but often help get new customers on the books. However, too many no- or low-profit products and services could leave you like a hamster on a wheel, furiously running and getting nowhere.
Take a look through your offerings and check that:
- Your pricing reflects your costs. If you’re paying more for wages, supplies or stock now than when you set your prices, you can’t keep absorbing higher expenses.
- Anything with a negative margin has a clear link to creating ongoing customers who become profit-makers.
Prospa tip: Profit margin isn’t just about the wholesale cost compared to retail – it includes all your fixed and operating costs.
Most small businesses need a cash flow boost sometime during the year. Call 1300 882 867 or apply online for a small business loan to keep cash as king in your business.