Business owners are overloaded with a lot of activities revolving around their business that they have very little time left for managing cash flow. Even though you have the brightest of ideas, mismanaging your company’s funds leads to the failure of your business. In this article, we outline some of the deadly cash flow mistakes that can really hurt your business.
Sometimes, to have excessive forced growth can spell doom for the business. It would call for more cash to be paid to the staff, bigger office spaces for accommodating more people and clients etc, which would lead to greater expenses. Extended services bring in more revenues, but with revenue comes in more cash outflows.
Spending too much on sales.
Based on the ‘Acquisition cost’ of the customer metrics and the ‘lifetime value’ of the customer metrics, it has to be ensured that the life-time cost is greater than the acquisition cost. Overspending on the acquisition cost might lead to gaining a customer with a very limited return. If you fail to do this, you’ll unknowingly start spending more money than you earn and eventually affect your cash-flow.
False profitability calculations.
Many-a-times, businesses feel that there is enough profit from every transaction the businesses enters into. However, businesses of all sizes run into severe cash problems because they have committed too much on overheads. One is profitable when there is enough money in the bank accounts left after paying off all your expenses.
Sleeping Over Late Payments.
Late receipts against your invoices can bring trouble for your business. Whenever there are delayed payments, there is loss of credibility from your suppliers. To avoid this situation, you have to pay them off to maintain future credibility. As a result, you block funds in your working capital and operations become hard. Learn how to create professional invoices and get paid faster.
Improper Management of Taxes.
Missing deadlines can attract interest penalties that can influence the cash flow of your business. If there are several defaults at the taxpayers’ end, then the Income tax department or the Commercial Taxes Department can come knocking on your door for an audit of operations. This ends up attracting more penalties and interests on penalties. Therefore, do correct calculations to account for taxes to maintain a stable cash flow at all times.
As a pivotal anchor of your business, if your cash flow isn’t well checked and maintained, you run the risk of making extreme losses which eventually lead to bankruptcy and eventual closure of your business.
Ensure to keep a close eye on your finances . be transparent and accountable with yourself and your finance team/ advisers to make sure you’re on track in regards to your business financial growth. You can read more on How To Avoid Financial Stress In Your Business to help keep you grounded.