No matter how solid your business plan is, how much experience you have in the industry, or how many wealthy investors you’ve lined up, your business won’t last long if you don’t have a good handle on its cash flow. A huge proportion of businesses fail due to poor cash flow management, and you need to approach the matter carefully if you don’t want your business to join them! Here are some common cashflow catastrophes you need to avoid.
Overshooting your Forecasting
Pretty much every successful entrepreneur is an optimist in some respects. After all, with so many obstacles, stress factors, and naysayers, you need to be able to persevere and avoid defeatism at all costs. However, if you let your sunny disposition impede your objectivity, it can cause serious damage to your cash flow.
You need to be as objective and realistic as you can when it comes to sales forecasting and base it all around hard data and historical evidence. Obviously, this can be tough in your first few years, as you won’t have much in the way of past sales figures and experience to work with. One of the best ways to get around this issue is reaching out to more experienced people in your industry, (not a competitor!) and asking them for some guidance.
Impulse Buying in the Start-Up Phase
That old adage “you need to spend money to make money” is certainly true, but it’s a big mistake to take this business principle too far. Placing too much emphasis on investing can make a newbie entrepreneur fall into a habit of overspending, especially when they’re just beginning to get their business off the ground.
Sure, certain pieces of equipment can be essential in your production cycle, and tools like Eviivo can be a major asset to businesses in certain niches. However, with each purchase you make, it’s essential to dissect it and understand how the cost will benefit your business’s revenue in measurable ways.
There are a lot of people out there who would gladly take your hard-earned capital for things you don’t actually need! If you want to assure a bright future for your business, pay close attention to your bottom line, and spend a long time looking into the cost and benefit of everything, no matter how small.
Being Passive About Late Receivables
One of the most damaging cash-flow issues, particularly when it comes to new B2B businesses, is unpaid receivables. If you’re not being proactive enough about collecting due payments from your clientele, you could be hurtling towards a very dangerous financial situation.
If you don’t have clear collection policies and late-payment penalties, customers are going to take advantage of it. When a B2B client knows you’re going to take a while to chase up late payments, they’ll try to free up some of their cash flow by paying you last. If you don’t have any clear policies regarding this, issue, start drafting them immediately!
As you take your first steps into the modern business arena, make sure you’re not leaving any room for these cashflow blunders!