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Top Business Cash Flow Mistakes to Avoid

business cash flow mistakes

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Are you making business cash flow mistakes that are hurting your bottom line? It’s one of the biggest challenges any business owner faces as they scale. Cash flow is the oxygen for your business, and many factors affect it. This includes stock management, sales, employee payments, and much more. 

60% of small businesses fail because of poor cash flow management. Therefore, it’s a serious issue that could cripple your business if you don’t pay attention. Fortunately, this article shares the top business cash flow mistakes you must avoid. 

Don’t Order Too Much Stock

Ordering too much stock may leave you with no cash for other important business tasks. This includes paying employees, taxes, commercial property rental payments, and much more. Therefore, you need to balance your next stock order with other commitments. 

Likewise, ordering not enough stock means that you may run out of products to sell, which leads to lower profitability. Optimizing cash flow is not just about having a lot of money in the bank, but making full use of it to grow your business. 

Ordering too much stock or not enough is a mistake that beginners make, but that’s understandable. Use it as an opportunity to learn, so that future orders make the most of your cash flow without running out of money. 

Don’t Delay Investing in Stock Management Software

From day 1 it’s important to create processes that reduce the chances of organizing the wrong amount of stock. Therefore, you should invest in stock management software. Here are the top features of high-quality stock management software you should consider:

  • Current stock levels: you should use the software to have a glance at the stock level of different products. This will help you make the correct decisions about ordering future stock. 
  • Alerts: if stock levels or sales velocity is too low, the software should inform you of the problem. This means you can know where to take action without having to check every time manually. 
  • Reorder recommendations: ideally the software will provide recommendations for how much stock to order. This saves you time since there is no need to manually calculate every time you place an order

Consider Hiring A Cash Flow Professional

Don’t make the mistake of tackling cash flow problems by yourself – especially if math is not one of your strengths. Instead, you should hire an accountant or related professional to help you manage your cash flow. 

The cost of investing in a professional might pay for itself in the form of helping you improve profitability. They can help you find instances where money is not being utilized to its full potential. 

Also, they can give expert advice on setting up better relationships with suppliers. For example, some suppliers might accept a deal where payment is made once you have sold your stock. This requires a lot of negotiation and showing how this is also valuable for the supplier.

business cash flow mistakes

Look for Investments and Loans

Businesses that want to scale and are suffering from poor cash flow, should consider getting investments and loans. If you have a proven business model generating revenue, it will be easier to secure funding. 

However, shop around to get good funding terms and conditions. This ensures that you can pay back at a rate that does not lead to bad cash flow in the future. Also, the interest of the loans must be competitive, so shop around to see what deals are available. 

Also, if you’re a small business, then you may qualify for interest-free loans or grants to help you overcome financial challenges. 

Pay Attention to Late Payments

Do you have late payments for services that your business uses? Then you must handle them promptly to avoid the problem getting out of hand. For example, you may incur interest that leads to bigger payments in the future. 

Also, the parties owed money may go down the legal route, which means you’ll need to pay for a lawyer to protect your business. This leads to more pressure on your business cash flow. Therefore, pay attention to late payments before they get out of control. 

Don’t Expand Too Quickly

Expanding too quickly can lead to serious cash flow problems because you’ll spread your business too thin in various departments. It’s important to grow at a predictable pace that reflects the amount of funds at your disposal. 

Here are a few ways that growing too quickly can lead to cash flow problems:

  • Hiring too many employees: it’s important to pay employees on time, so don’t hire more than you can afford to pay. You may have to do more work yourself or get help from friends/family until your business has the funds to grow the team. Also, you can consider interns or volunteers trying to build a CV. 
  • Adding too many products: when adding new products to your inventory, the cash flow demands increase. That’s because you must be in stock for every product, or it will lead to a poor customer experience. 
  • Renting or buying too much real estate: if you’re running a location-based business, then don’t invest in more commercial real estate than is needed at the current stage. Tying up your money in assets can leave no funds for stock or other essential payments. 

Final Thoughts

Have you made some of the mistakes outlined in this article? Then you need to consider the solutions we present to improve the quality of your business cash flow. It’s an ongoing battle since new cash flow mistakes will be made as you scale. 

However, the goal is to constantly improve your cash flow best practices to ensure that you increase the financial stability of your business. With practice you can eliminate all of your cash flow mistakes and end up with a healthy business primed for growth. 

About Author

Picture of Rick Mak

Rick Mak

Rick Mak is a 30-year veteran businessman, having started, bought, and/or sold more than a dozen companies. He has bachelor's degrees in International Business, Finance, and Economics, with masters in both Entrepreneurship and International Law. He has spoken at hundreds of conferences around the world during his career on entrepreneurship, international tax law, asset protection, and company structure. Business Anywhere Editorial Guidelines

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