Growing Your Business

5 Cash Flow Mistakes That Can Destroy Your Business Growth

by
Sonu Shukla
on
2/14/2017
5 Cash Flow Mistakes That Can Destroy Your Business Growth

Left and right, small businesses face a common challenge that can make or break them in the first year of operation, and that challenge is not having enough cash. Even companies that have plenty of customers can fold if they don’t pay attention to their cash flow and liquidity. Worse, mismanagement of cash can create all sorts of problems, from litigation to losing personal assets used to secure financing to run the business. Here are five ways that cash flow in a business can be fouled up really quickly by bad management decisions, and the results have significant potential to destroy a company before it gets off the ground.

  1. Using Unreasonable Payment Terms With Clients – It may seem logical to give generous payment terms of payment that are due in 60, 90 and even 120 days, but it will kill your business very quickly. While your client is enjoying free credit (because you’re not charging interest on that delayed payment), your business bills are coming due. Startup after startup ends up blowing through their line of credit to sustain their operations while waiting for payments to materialize months later. Instead, be firm and require 30 days maximum for payments due and, ideally, 15, to be ahead of the curve. Most clients will accept 30 days as a typical payment expectation.
  1. Not keeping a Reserve at All Times – The whole point of a reserve or emergency account is exactly that, to have something in an unexpected emergency. That doesn’t mean that you have to have a credit card with a big open account on it. It means saving money and putting it aside for instant liquidity to deal with an unforeseen problem. So when the plumbing breaks, a ceiling fan falls, or a critical assembly machine stops, your business has the means to deal with it there and then versus shutting down.
  1. Swarming With Monthly Charges – It’s easy to get caught up in monthly-billed subscription services. They seem to make tools and amenities for your company cheaper, spread out over 12 charges instead of one and owning the tool. However, this is a slippery slope, and before a business owner knows it, he’s neck deep in monthly subscription bills coming due. They eat up cash flow quickly and produce nothing more than 30 days of use. Buy once, own it and forget the recurring bills eating your cash flow. 
  1. Not Saving for Taxes Early – Just like your personal income tax or home property tax, businesses hit, and they hit big. Every month, the business needs to save and put money aside to cover both payroll withholding as well as business income taxes. Don’t spend it all, assuming that a big sale will take care of taxes due at the end of the year — it almost always doesn’t happen. Then your business gets stuck with a big tax delinquency and very expensive penalties. And tax agencies are notorious for seizing bank accounts and money other firms owe your business to settle tax bills due. Your business can’t live if your bank accounts and payments are grabbed in total and taken instantly.
  1. Not Anticipating Cheapskates – Don’t assume all your payments will come through without a hitch. Spread out your clientele so that if one goes bad, your cash flow is not hung up on a cheater who won’t pay on a timely basis — or at all. Small businesses repeatedly make the mistake of putting their efforts on one big account, and when that bill isn’t paid, the company folds without the necessary cash flow to continue. Diversity of customer accounts is your best defense against late payers and cheaters.

Cash is your company’s lifeblood, so treat it that way. Your growth will happen naturally if your business ensures cash flow is consistent and regular to manage expenses adequately. See, you did need to learn accounting after all.

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Sonu Shukla

Sonu Shukla

Sonu Shukla is a CPA, accountant, and tax preparer based in Orlando, FL. Sonu Shukla can assist you with your tax preparation and planning needs. Sonu is more than just another accountant in Orlando, Florida; he is a small business owner himself. It is a position in life that grants him the perspective and insight to emphasize with his clients, bringing them the best service possible. A Certified Public Accountant and a Certified Financial Planner, Sonu possesses the skills, education and experience to demonstrate unerring business acumen and passionately planned financial strategies. Being proactive is key for Sonu, tailoring highly efficient tax plans for his small business clients, all in a one on one environment where he and the client can bounce ideas around until every detail is worked out.

SONU SHUKLA, CPA, P.A.
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Florida

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