Don’t Make These 3 Common Mistakes!
1. Poor Cash Flow Management
Profitable businesses go bust because they run out of cash. Because they have poor cash flow management, or they don’t hold cash reserves – so a bump in the road results in a crisis.
Often due to poor Credit Control, or poor foresight over bills that need to be paid. You should strive to build up a cash reserve in your business, so if a machine breaks down or sales dip one month, you have a pot of cash to fall back on.
How to Avoid
Cash flow forecasting is the best way to avoid poor cash management, it helps you see what’s happening & build a cash reserve – why not forecast an amount to save each month into a separate bank account.
Why not do a cash flow forecast as well when you do your Profit & Loss budget, that details what you’re expecting to come in and go out of your bank account. Remember to include things that are not in the P & L, like tax payments, asset purchases, loan repayments.
2. Ignoring The Numbers When Things Are Going Well
Business is booming, the bank balance looks great & you’ve got a nice healthy cash reserve in place. So, why do you need to keep on top of your numbers now?
Taking your eye off the numbers is a quick way to see a quick 180 & turn from excellent to really bad, customers soon spot you’re not chasing them up. When cash flow is good, it can be easy to miss things like late payment of invoices & indulge in one-off purchases, it won’t take long for good cash flow to turn to poor cash flow when these things happen.
How to Avoid
Be consistent, keep doing everything you did to get the finances in good shape, all that work & effort is worth it, so keep it up.
Business is ever changing; you need to be consistently & constantly on top of the finances, so you can keep them positive & healthy. Ignoring them when things are good isn’t smart. Be better than that.
3. Not Planning for the Irregular or One-Off Costs
There are some expenses, or cash outflows, which occur irregularly.
For example: Christmas bonuses, only occur once a year, purchases of assets are big one-off expenditures. For example, a van, or laptop, both may need changing after 3 years. Then, what about your tax payments: VAT, corporation tax, PAYE, or self-assessment- they need to be paid in time & if not they can have a detrimental effect.
How to Avoid
You need to factor in those irregular things, those one-off & tax payments when you’re forecasting your cash flow, adding them in. This will improve your cash flow management & make sure you have the cash to pay them.
You need to know what taxes to pay & when they are due. Missing tax deadlines is a quick way to add unnecessary cash expenditure into your business.
Plan everything into your cash flow forecast, taking time to consider the more irregular things – for example: don’t forget your insurance – and you’ll avoid this common mistake.
If you find this interesting or helpful, why not book a meeting to see how we can help you?
