Small business owners typically commit a series of cash flow errors which cripple their ventures. Cash is the lifeblood of any growing small business. Severely mismanaging your business cash flow usually results in your venture going belly up.
Settling Bills Before Due Dates
If the vendor offers a discount before the bill due date feel free to pay bills early. Under no other conditions should you pay bills early. Keeping cash on the balance sheet should be a chief priority. Decreasing your cash reserves at an earlier date than necessary only hurts your small business. Cash is the lifeblood of any entrepreneurial venture. Hold onto cash until the last minute possible to promote your small business growth.
Not Paying Strict Attention to Accounts Receivable
Don’t neglect accounts receivable. Hire an employee to handle AR or review your accounts receivable on your own to see if customers are paying their bills. If you find customers paying late on a regular basis take the appropriate actions to speed up payment. Build business relationships with paying customers and penalize late paying customers to make your point. Decreasing AR days outstanding is critical if you want boost your small business cash flow.
One of the biggest issues here is many businesses do not have a set process in place to handle past due invoices–their collection efforts are unorganized and haphazard. If you are really struggling with this issue, it may be worth looking into funding alternatives like accounts receivable financing, until you turn things around.
Substandard Inventory Management
Tying up too much cash in inventory can stifle your cash flow and hurt your small business. Stocking up on more inventory than you need is an inefficient approach to growing your business. Sitting on products while giving up much needed cash to fund your bloated purchase can seriously stunt your small business growth. Don’t go to the other extreme either; having too little inventory might hamper your ability to fulfill orders which can ruin your reputation. Forecast your sales effectively. Estimate needed inventory levels by predicting how many products you expect to fly off of the shelves.
Blowing Money on Poor Investments
Stop investing capital in unnecessary expenses. Critically assess any cash out flow. Is the spending justified? Go over each investment with a discerning eye to cut down on frivolous or unnecessary spending. Attach a justification document to each spending or purchase report. Cut down on unneeded purchases by reviewing spending on a frequent basis. Hold buyers accountable for any foolish or non essential purchase. Grow your small business by cutting back on non- essential spending.
Freely Granting Credit
Before extending credit to customers do thorough due diligence. Research your customer’s credit history. Dig into their payment history. Are they responsible? Lending money freely to irresponsible, late-paying customers with poor credit histories can do irreparable damage to your small business. Check for references from suppliers who have a history with the company. Ensure that the customers have made timely payments by contacting the list of references. If you cannot find any references simply do a credit check on the business. Never extend credit to a customer who does not receive glowing endorsements from the references you have spoken to for doing so could be financial suicide for your small business.
- License: Royalty Free or iStock source: http://smallbiztrends.com/2012/08/accounts-receivable-financing-and-factoring-may-help-small-biz-cash-flow.html
Kelli Cooper has covered the gamut of business topics, from internet marketing to how to improve finances.