Cashflow Management Mistakes That Most Entrepreneurs Make

Cashflow Management Mistakes That Most Entrepreneurs Make

As a business owner, you can learn from some of the mistakes that you make. Cash flow management is a trick subject that even the most experienced entrepreneurs struggle with.  There are some mistakes that you could still be making even after being in business for over 30 years. Let’s share some of these cash flow management mistakes that you need to avoid.

Impulse Spending

Impulse spending is evident in various forms. You could be sponsoring an event or buying a new equipment that was not in your original budget. Make sure you have a replacement budget for all your business accessories and plan for all your expenditures well.

Paying Your Bills on the Basis of the Bank Balances

This mistake is very common among entrepreneurs who are struggling with the issue of cash flow. In this case, the squeakiest wheel end up getting the check. When someone comes to confront you in the office demanding for a check, you are unable to give the most appropriate day but use what you have in the account to make the payment. You may have a vendor to pay that day and what you are doing is putting the needs of other people before your business needs. This may damage the image of your business and hence you must be keen with your expenses.

Extending Credit to Non-Credit Worthy Customers

Be extremely careful when you decide to extent credit to your customers. Let them fill a credit application form and even provide bank references and credit references. Call these references to know the outstanding amount they have with them. Don’t hesitate to request for financial statements if you are selling high ticket items.

Allowing the Account Receivables to Age

You have an obligation the invoices for all the credit that you extend to your customers. Don’t look for reasons for not collecting the debts that are due. These excuses will result into poor cashflow managment practices. Make sure you are up to date when it comes to debt collection. Make your customers understand that you expect them to meet their obligation on time.

Paying Vendors too Early

This is only important when you don’t have a shortage in your cash flows. Otherwise, pay the vendors on the due date but don’t extend the payments at it may loose trust. The most important thing is to foster s good working relationship between you and your suppliers. Some discounts may be worth giving up your cash but don’t allow this to paralyze other operations. Weigh the pros and cons of each action and then make an informed business decision.

Stocking Up on Suppliers and the Inventory

It does not make sense to have a lot of stock on the shelves but have no cash for other vendors. You may think that you are raising your gross profits by saving on the price of each piece. The challenge is that you will tie up your capital and lose on other opportunities. Weigh whether the extra savings you make from bulk purchases are worth the amount of time that the goods will sit on the shelf. The challenge with inventory is that it may lose value over time and wont earn any interest.

Lastly, you may have cashflow management problems if you don’t control your payroll costs. Lack of planning and direction can make the payroll cost to increase. Plan out a good work schedule and make sure you stick to it. Set standards that will make sure that your payroll costs are standard. Avoiding all these cashflow management mistakes will make sure that your business has no liquidity issues.