Cash flow is the lifeblood of your small business and you can’t think of running and growing your business without it. You can imagine the importance of cash flow from the fact that more than 80% of startups and SMEs fail due to insufficient cash flow management. You can pay your bills, buy inventory, hire employees, and expand your small business only with a positive cash flow.
The problem with small business owners is that they are often overloaded with a lot of responsibilities, and they have very little time left for managing their company finances. Not understanding and monitoring your cash flow may lead to serious cash flow problems that later leads to a failed small business.
In this blog post, we run through some common cash flow mistakes that every small business owner should avoid to run and grow a successful business.
Using Business Revenue to Make Decisions
If you think you’re running a successful company merely based on your business revenue, you could be wrong. You might be selling more products, earning tons of revenue, and increasing your business reputation.
But remember, your bank balance only showcases how profitable your business is. Unfortunately, it doesn’t provide you any visibility into sales that your business is expecting in the future, invoice payments you expect in the coming weeks and months, and future transactions that will drain funds from your revenue.
If your business expenses are exceeding your business revenue, it means you are an unprofitable business and can’t survive your company. It’s important to create a cash flow strategy that set aside some of your revenue as profit and help you project things for the coming weeks and months.
Not Investing in Latest Technology
To better cash flow management, it’s crucial to have advanced financial technologies at your disposal. One of the best ways to manage your cash flow is to invest in cash flow forecasting and management software. These innovative apps can help you view, plan, and solve cash flow gaps in real-time.
Moreover, you can understand the financial position of your business, get an accurate picture of your past, present, and future cash flow, and see what cash is coming in and what is going out. All these features of a cash flow forecasting software can help you reshape financial standing, make better financial decisions, and ultimately boost your business’ cash flow.
Not Considering Alternative Lending
When you’re struggling with cash flow issues, a working capital loan can help you solve the problem. However, getting a loan through traditional banks can be complicated. They usually consider credit score, annual revenue, and other factors when approving your loan. Since most of the small business owners can’t fulfill these requirements, it becomes difficult for them to secure working capital to solve cash flow issues.
Online alternative lenders often have different criteria to approve your loan application. They require less documentation and the overall process is quite easy and fast. You can take out an emergency loan by filling out a 15 minutes application form and once approved you can get funds into your bank account in as little as 24-48 hours.
Moreover, they also provide various asset-based loans that you can borrow against the value of your real estate, equipment, inventory, and other assets. Equipment financing, invoice financing, invoice factoring, and microloans are some of the best alternative financing options that you can secure to manage your business’ cash flow.
Not monitoring Cash Flow Regularly
Many small business owners believe that financial management of a business involves managing bank account, checking profit and loss, and keeping an eye on tax liability. Some don’t know about cash flow management while others don’t know how to do it.
Not monitoring your future incomes and expenses can be really dangerous for your business. Not tracking your finances regularly means not managing them properly and hence not preparing yourself for the future. It’s important to create a smart plan for your cash flow management so you can break down incomes and expenses into recurring and one-time payments.
Spending Too Much
You need equipment, machinery, technology, staff, facility, and more to run a successful small business. But when you’re facing a cash crunch in your business, it’s important to invest your money smartly. Spending too much too soon on luxury items and cutting-edge technology can lead to serious cash flow issues in your business.
Stay practical – first, spend on those that will help you generate profits and achieve your business goals. Don’t add any more debt than necessary. Start with the basic equipment and upgrade as your profits grow.
So these are the most common cash flow mistakes you should avoid as a small business owner. If you need working capital to solve your cash flow issues, getting funding through an online lending marketplace could be the best solution. You can find and compare a variety of cash flow loan offers from multiple lenders so you can choose one that best fits your current financial needs and budget.