Cash flow management is a critical skill for small business owners. Are you making these common cash flow mistakes?
You won’t get very far in business without cash. After all, you can’t pay your bills with IOUs from your customers.
But even profitable businesses can find themselves without enough cash to operate. It all comes down to timing: Do your customers pay you before you have to pay others?
To ensure that you don’t get caught in a crunch, watch out for these common cash flow mistakes:
- Not keeping enough cash on hand. You need a cushion to make sure operations run smoothly through slow times. When revenue is up, that means socking away a little extra for when revenue dips back down. Depending on how seasonal your business is, you may want to keep enough cash on hand to cover three to six months’ worth of expenses.
- Letting late payments slide. As a small business owner, you have a close relationship with many of your customers, and you don’t want to sacrifice future sales by turning into a rabid collections agent on the 29th day of every month. But don’t let unpaid invoices pile up in a misguided attempt to keep customers happy. You simply can’t afford to let late payments affect your ability to operate your business.
- Making unrealistic revenue projections. When it comes to both long-term budgeting and short-term cash planning, honesty is the best policy—honesty with yourself, that is. Sure, it’s exciting when your business is growing and sales are moving in the right direction. But you need to be realistic about how much and when you’ll actually see that revenue. SCORE offers templates you can use to help plan your cash flow and financial projections so you don’t get caught short.