There are some errors, business owners should be aware of that can lead to serious cash flow issues, if they are not careful enough. These are some financial mistakes, you can easily avoid to protect your business from going south:
Failure to differentiate personal funds from business funds – This is one of the dangerous pitfalls that small business owners fall into. It is important to separate your personal finance from the business finance when starting out. Even if you are funding the business from personal savings, you still need to create a different account for it. Failure to separate the two can lead to confusion and complications when you are trying to balance the accounts, measure profits and also set clear financial goals.
Lack of an emergency fund – Foresight is critical when doing business because you never know what’s going to occur tomorrow, as there may be unexpected hurdles along the way. Every business owner should have a contingency plan for their finances – a two-month emergency fund at least. Despite the size of your business, you should learn to bootstrap and stay lean. Many start-ups die in their early stage not because of lack of money but due to its misuse. An emergency fund serves as a backup plan to keep the business going when issues arise.
Late payments – Nobody enjoys paying bills and we tend to postpone them till the last minute. Even business owners are also guilty of this, when it applies to their account payables and receivables. Business owners feel giving their clients an extended window of time to make payments will encourage the customers to patronize them more often. The clients may enjoy the flexibility of payment but this can easily paralyze your cash flow. It is advisable to give your clients not more than 14 days to pay an invoice. As an entrepreneur, you should not delay in paying your bills especially when you are paying off debts. There are online payments solutions that offer invoicing and accounting features to help you effectively manage your finances.
Spending excess time on unproductive activities – When running a business, it’s not every activity that will generate an ROI, so it is imperative to differentiate the one, which have the highest chances of generating some cash flow. Pay close attention to your productivity levels by adequately tracking and managing your time. Remember time is your most valuable asset and its okay say no to meetings that will offer little or no value to the business. The 80/20 rule is still the principal rule, identify the activities that generate most cash for the business and develop the habit of spending 80% of your time doing these tasks.
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