Are you opening and managing your own business? Is cash flow management harder than you expected?
You aren’t the only one who thinks so. More than half (61%) of small business owners struggle to create a working strategy for cash flow management.
In order to be part of the other 39% you must know what mistakes to avoid. We will tell you all about them in the guide below.
By the end of the article, you’ll have all the information you need to go into tax season confidently. You’ll know more about the cost of acquisition and how to manage production costs better.
Read on!
1. Not Monitoring Financial Statements
You have a lot on your plate as a business owner and manager. It can be easy to push off monitoring your financial statements. It may even slip your mind from time to time.
However, making it a priority will help you avoid a headache later on. If you’re not monitoring your statement, there’s a greater risk of misinterpretation.
That could lead to the decision being made without all the facts and could lead to a lot of issues.
Regularly looking at your statements will allow you to identify issues quickly and get them fixed. You will also be able to better predict future cash flow.
You won’t be able to make investments and create expansion plans if you don’t have accurate information. Be sure to schedule a time to look over your financial statements so you can better prepare for the future.
2. Poor Stock Management
When you’re managing your cash flow, you must consider your stock and inventory levels. You may not realize how much money is tied up in your excess inventory or how much money you’re losing running out of stock.
If you have a lot of extra products on your shelves, you’ll spend money unnecessarily on storage space.
Studying the trends and regularly analyzing your inventory will allow you to improve your cash flow management.
3. Confusing Cash Flow and Net Profit
It’s easy to confuse cash flow and profit. Cash flow is the money that is coming in and out of your business every day. Profit is the amount after you subtract your expenses.
A positive cash flow doesn’t always mean you’re making a profit. If you don’t know the difference, you may be unpleasantly surprised when you look at the numbers.
Both profit and cash flow are important to your business and you must look at them separately in order to run a healthy business.
4. Expanding Too Quickly
When you’re running a business, growth may always seem like a positive thing. However, that’s not always the case.
Forced growth can actually be detrimental to your business.
When your business is doing well and flourishing, you may be tempted to stray from your financial business plan. Rash decisions like this can lead to inconsistent cash flow, causing you to go into debt very quickly.
In order to manage your cash flow properly, it’s important that you focus on sustainable growth. This will allow you to create a financial plan so you can continue to pay your employees and suppliers.
Before you take on more clients or order more inventory, think about how you’re going to cover the cost of staff, inventory, and materials.
Ask yourself, “Am I in a position to financially support this new project or expansion?”.
While saying ‘no’ to more money in the present may seem unwise, saying ‘no’ to a project you’re not ready or equipped to handle will help you avoid issues with cash flow and profit in the future.
5. Ignoring Tax Management
Paying taxes is one of the least glamorous parts of owning a company, but it must be done.
In order to avoid interest and late fees, which will negatively affect your cash flow, you must pay them on time. If you aren’t sure how to properly manage your taxes, find a company that offers tax services.
They will be able to help you create a plan with your cash flow in mind. Creating a plan will make tax season much easier and you won’t be blindsided. It will also allow you to plan long-term and prepare for unexpected rates in the future.
6. Forgetting About Seasons
It’s essential that you consider your busy and slow seasons. There may be times during the year when you see a spike in sales and you need to be prepared for the season when there is low to no cash flow.
You’ll need to create a plan to ensure you have income and funds to keep your business going, even in the slow season. There are a number of ways you can do this. You can offer discounts or work with other companies.
During your busy season or when sales pick up, it’s easy to focus solely on what’s happening in the current moment. However, forgetting about the upcoming dip in sales could be very damaging to your cash flow and overall profit.
Cash Flow Management Tips
There’s no doubt that running a business is challenging. However, it can be made easier by working with other professionals. Whether you’re struggling to manage your cash flow or not, you can always benefit from working with an expert.
We have worked with hundreds of business owners and companies and helped them prepare for tax season and cash flow management.
Our team is ready and available to help you too. Send us a message here at our Charlotte, North Carolina office, and will help your business thrive!