Cash flow is the live wire of any enterprise, no matter of how profitable your business is, your shelf life can be cut short, if you can’t manage your company’s cash flow effectively. A study from a financial services company U.S. Bank, found that as many as 82 percent of startups and small businesses fail due to poor cash-flow management. Managing your company’s cash flow should be your #1 priority, to avoid jeopardizing the future of the business. Here are some cash flow problems facing many entrepreneurs today:
Overshooting the volume of future sales
A key trait of every successful entrepreneur is dogged optimism. But while optimism is vital for a fresh business owner, you shouldn’t let it compromise your objectivity because it can be affect your cash flow negatively. Unfortunately, not every interested window shopper will eventually make a purchase. While your sales volumes may increase during the festive season, expecting them to double is a little impracticable. Therefore it is important to do objective sales forecasting based on past evidence and actual numbers. Through quantitative forecasting methods, you can use other businesses within your industry as a basis for monitoring trends and forecasting future sales. This information will give you more realistic future sales projections.
Spending on impulse during the startup phase
‘It takes money to make money’ is a popular saying in business, which is true in many ways. Unfortunately, this popular belief has led many rookie entrepreneurs to fall prey to gross overspending, especially in the start-up phase of the business. While it takes money to make money, not all startup expenses are the same. Starting a business involves a lot of constructive expenses — costs that will benefit your company’s profitability in measurable ways. If you want your business to stay profitable, it is important to keep your eye on the end result, bearing in mind the cost-profit analysis of every single expense.
Lack of a Cash flow budget
Tracking your day-to-day cash flow is imperative to successfully run your business. With the help of a cash flow statement, you can monitor the inflow of income and outflow of overheads within a specific period of time. This will help you forecast days when there will be more money going out than coming in. Your cash flow gives you more insights so you can prepare for the tough times ahead. When you don’t have a system for tracking your cash flow, your finances will be in a mumbo jumbo state, leading to mismanagement of funds thereby affecting the growth of the business.
To keep your business from plummeting due to cash flow hiccups, it is vital to have enough money in your account which is equivalent to a minimum of two months cost of operations. This way, when unexpected cash flow setbacks arises, there is a backup plan to ensure the business is still running smoothly.