Having smooth and stable cash flow is very important for business owners. Without it, your business can sink in just a few months. This is something you have to be careful about, especially since it has been found that 60 per cent of Australia’s small businesses go bankrupt within the first three years.
If you want to stay away from problems with business cash flow, you should be aware of possible errors you can make. To start, here’s a quick list of common cash flow mistakes and how you can avoid them.
1. Expanding Your Business Too Early
Every entrepreneur dreams of expanding their business. But doing it too early without a concrete plan of what you should do or enough money to sustain your needs can be a very big problem. For instance, if you are expanding into a new branch even before you reap profits for your current branch, you’ll have to pay rent in advance and lose a huge chunk of money that you need.
Here’s what you should do instead. Create a spending plan and stick to it. Make sure you always have cash reserves in case of surprise expenditures and that you regularly do a cash flow forecast.
2. Overinvesting Your Money on Things You Don’t Need
When you start running your dream business, it can be tempting to overspend and buy some things that you really do not need at the moment. Remember that spending money on non-business critical things can drain your cash flow. As you are still starting up, you should have sufficient cash to pay for the things that really matter.
Here’s a quick tip. Before you purchase new equipment or systems, make sure that it is really what your business needs. It’s best to keep a running list of things that you must have at the moment and things that would be nice to have once you have the budget for it.
3. Reaping Lower Profits than Expected
In trying to get your business up and running, a major source of funds that you will need come from cash. It may be from payments you receive from customers or it can be through selling your assets.
If your business is not quite profitable yet, you will be caught in a web of having to borrow more cash than you have the ability to repay. Think about the reasons why this might be happening. Are your staff unproductive? Are you not charging enough for your products? Are you spending too much?
Here’s what you should do instead. Think about ways to improve your marketing efforts, particularly on social media. There is great potential for success on Facebook, Instagram, Pinterest, YouTube, and even TikTok. And if you can, participate in local trade shows and look into other ways to generate new leads.
Poor cash flow can be a danger to the survival of your business. So, spend your time budgeting intelligently, forecasting well, and paying close attention to your expenses to keep your cash flow stable.
If you want to gain control of your finances, work with us at Swell Financial Planning. We can connect you with a financial consultant in Queensland that can give you proper advice and help you keep your business afloat. Book a consultation today to learn more.