4 Cash Flow Mistakes that Could Kill Your Business

Math was probably your least exciting subject in school. It isn’t surprising that financial management isn’t your favorite part of running a business. However, it is an absolutely essential part of being an entrepreneur.

If you aren’t paying attention to your cash flow, your company will fail. Approximately 70% of all business failures are driven by poor cash flow management.

Here are some of the biggest mistakes you may be making.

1. Not Managing Company Money as Carefully as Your Own

I have met many entrepreneurs that are very careful about managing the money in their own bank account, but they are much more negligent about managing their company’s finances. They often justify unnecessary expenditures by telling themselves that they need to invest money to run a successful business.

One of my friends owns his own auto body shop. “I am a real penny pincher when it comes to my own life. I told my wife we can’t buy a new pool table because it costs too much. However, I bought two new inventory management applications without researching anything about them or making sure I would use them. I realize I need to treat my business’s money more like my own.”

You can’t grow a business without investing money. However, you need to invest your money wisely.  Before spending any money on your business, you need to make sure it will be used wisely. Money that you waste on your business is money that you can’t take home.

You may want to hire an accounts payable services provider to manage your expenditures and help you see if there are any places you need to cut spending.

2. Not Being Clear and Firm with Your Terms and Conditions

Delinquent payments are a serious problem for many businesses. According to Sutherland Global, nearly 19% of accounts receivable are unpaid at any given time. Many businesses never collect on accounts receivable for some customers.

One of my colleagues was an independent contractor for a local social media marketing agency a few years ago. The owners told him they had to cancel at least three accounts, because the clients never paid. They eventually had to close their business down, due to poor cash flow.

Delinquent customers can ruin your business, especially if you are paying for materials and labor to serve them.  You must have a very clear contract in place and make sure that you enforce it consistently. If you give clients too much leeway, they may abuse it and never pay. Only make exceptions for long-standing clients and make sure you are still firm with them.

3. Failing to Monitor for Fraud

Fraud is a very common problem that can affect any business. You need to monitor your bank accounts, business credit cards, Paypal accounts and other financial accounts regularly to look for fraud.

Unfortunately, businesses don’t receive the same protection under the Fair Credit Reporting Act as consumers. If you don’t identity fraud immediately, it can ruin your business. Embezzlement is one of the most common forms of fraud, which can utterly destroy many businesses.

4. Trying to Make Up Taxes Later in the Year

When you work for someone else, they take a share of your income for taxes every year. Business owners have to be responsible for their own taxes.

It is very easy to fall behind, especially since business owners are subject to many different types of taxes. If you fall behind, make it up as soon as possible. It is easy to keep procrastinating your tax obligations. You will be in dire straits if you wait until the end of the year.

It is better to tighten your belt and reduce your personal expenditures now, rather than getting a notice from the IRS or local tax board a few months down the road.

Source: smallbusinesscan.com