Many start-ups and small business owners fail to flourish and achieve their goals, not because their idea was bad or they were not working hard enough, but because of their lack of financial management skills. Maintaining the flow of working capital is crucial for the success of all forms of business operations.
Even if you are making profits at the current hour, if you do not keep a working knowledge of the financial status of your company, you will most likely fail in the future. The financial status of your organization forms a keystone based on which you can make sound decisions.
Financial mistakes to be avoided at all costs
Being the lifeline, lack of cash flow management is a recipe for failure. If you want your business to grow irrespective of your present situation, stop making the following mistakes regarding the cash flow in your organization:
- Improper planning:
- In the absence of a thoroughly calculated budget that has accountability for profit and loss, you cannot correctly forecast the requirement of working capital needed for running a business.
- The budget planner should include turnover time for payments, inventory regulation, loan repayments, and other capital expenditures.
- Anticipating expenditure is very important for the correct calculation of profitability, failing to do so can result in cash loss very quickly.
- Using working capital for long-term investments:
- Regular cash flow is essential for the day-to-day running of any business.
- If you lock this money in high-cost investments, you will eventually run out of cash for regular functioning.
- Financing such investments is a wiser move.
- Focusing on cost-cutting instead of revenue generation:
- Revenue generating factors should be the focus if making a profit is your goal.
- Keeping an account of returning customers and the number of sales each one gives you can help you in making strategies to improve that number.
- When you shift your focus to revenue-driving factors, your overall profitability increases.
- Under-utilization of opportunities such as festivities and seasonal sales:
- Peak season is when you make the maximum profit because of the large number of sales achieved.
- If you have not kept any reserve for increasing your business operations during seasons, you lose a chance to generate profit.
- Also, you will not be in a position to handle overhead expenses when the business comes to a near halt after the peak gets over.
- Ignoring timely payment of invoices:
- If you are not dealing with customers not paying on time or if you are the one who is always delaying supplier payments, your business will eventually suffer.
- Firstly, because you will not be able to build a relationship of trust on both ends.
- Secondly, because late payments affect cash flow.
All these and sometimes even just one of the above-mentioned factors can hugely impact the financial condition of a business. If you are a small business owner, such as mistake can even lead to insolvency of your business before you have even achieved a foothold in the market. Plan and carefully monitor your cash flow if you wish to earn money from your business.