8 Cash Flow Management Mistakes For Entrepreneurs To Avoid

Any and every person who has been an entrepreneur or the head of a startup will tell you that it is an insanely difficult thing to pull off, especially with the rising start up costs we have been seeing lately. The first thing that is expected of you is to come up with an idea for a service or a product which is of real use to your target audience, in the sense that it generates demand in the market. There are a number of moral, ethical, legal and financial decisions you will have to make down the line which are each capable of making or breaking it for you in the future.

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Finance will most definitely be one of the most discussed, contemplated and difficult aspects of your business. Making mistakes in policy and execution is something you cannot willingly avert, but they aren’t as bad as you think. Some mistakes help you rebuild the firm and take it to a stronger standing than it had before. Some make you smarter, some raise team spirit. Some, however, could cost you money, time, peace of mind and maybe your entire business if they snowball into something huge. Here are some common mistakes you could encounter in your life as an entrepreneur that you should certainly avoid if you can help it.

Going Overboard With Overhead Investment

Overhead investments are those which are not vital to your business, but are a part of the functioning of the company itself, for example, renting an office, buying equipment like printers, stationery and a number of other things. Now, a common mistake most entrepreneurs make is that they spend way too much on overheads, not knowing how much they really need. Then, they end up biting off more than they could possibly chew. This is a bad idea. You should give it some time, analyze what you need to invest in, and make smart investments.

Extravagant Mentality

So you’ve just started operations, hired a few people, maybe even enticed a bunch of customers. Does that mean you should invest in office-wide renovation, new expensive furniture, badges for all your employees and all the nice bells and whistles? It most definitely does not, but there aren’t too many businessmen who understand that. Sure, you deserve an elegant, classy office. Just hold on till you’re able to afford one.

Setting Expectations Too High

Too many business owners make the mistake of overestimating the future sales volume for their business. Yes, business owners should dream big. That is what led you to open a business in the first place. However, overestimating future sales volumes could be disastrous for your business. Many financial decisions will be made based on these figures. If you overestimate, you will spend money that you do not have. Underestimating is better than overestimating. It is better to be pleasantly surprised and have some extra cash flow to inject back into business than it is to be worried sick about how you are going to pay your employees. Do not overestimate your future sales volume. This is a mistake far too many entrepreneurs make when they just start out.

Misunderstanding Miscellaneous Expenses

Miscellaneous expenses are those which don’t make it onto your ledger. These are some expenses you have to make down the line, which you hadn’t planned on or expected to make. Most businesses keep a certain amount for miscellaneous expenses at the beginning of the project. It is important for you to lay aside a larger amount for the same. Miscellaneous expenses will always exceed your expectations.

Hiring Too Soon

It is definitely a milestone for any company when they start hiring employees. It gives you a tremendous amount of satisfaction, and in general raises the profile of a company, but it is an excruciatingly expensive deal for you, and should really be delayed till you really feel the need for an extra pair of hands, and till your company has gained critical mass and is able to pay them off.

Poor Investment

You have a product, an idea, a dream. You pour in a huge amount of money to see that dream come to fruition, but it doesn’t. Maybe there are problems in production, maybe in execution; maybe the final product is overpriced, under-produced or just not marketable. You see how easily things could go wrong? Market research is extremely important; you must also conduct a few test runs to see if your product works, get some feedback, and then refine it to perfection. This way, you never have to worry about bill consolidation to solve past business mistakes.

Dodging Taxes

Accountants have always been looked upon with fear and doubt by entrepreneurs, for some reason. However, in the long run, an accountant will actually help you save and keep track of a lot of money. A man in charge of your accounts will be able to keep track of cash flow and also help you avoid tax penalties by reminding you and ensuring that you are making quarterly tax payments. You can’t go wrong here. Hire an accountant.

Outsourcing

Outsourcing every job is yet another very enticing mistake you do not want to make. It is an expensive proposition, and most of the tasks can and really should be done by you rather than settled by a hired outsider. It saves you the money, and helps you stay in touch with the execution aspect in the initial stages of your firm. Soon, when it reaches critical mass, you will need to delegate jobs, but hold off on it till you can really afford it.

You need to understand the working of your firm and make smart monetary decisions to keep any disasters at bay. That is why having a job costing system in place is such a good idea. These are among the most common mistakes, so starting here may well be a great idea. Then once you have stopped these bad habits, you are going to want to know which good habits to start forming.

Cash Flow Management

Cash flow management is only effective when you know what is coming in and going out and when. You are going to want to compile this data so that you can see everything in one place. Then, you should make cash flow projections for the future of your business. This will help you to better prepare your business to allocate funds for unexpected and expected occurrences. Find out how much money you have coming in each month from client invoices, any interest you may be receiving and debt collection. That way, you have a solid grasp of how much cash your business has on hand. Then, account for all the money that leaves within the month for bills and various payments. You cannot adequately manage cash flow for business without knowing what is coming in and what is going out each and every month. Make sure to be thorough for the best cash management practices.

Author Bio: Matthew Harrelson is a financial consultant. He is also a blogger and has conducted reviews of several firms like national debt relief – https://www.nationaldebtreliefprograms.com/ as well.

Image from http://www.waynepearce.com.au/blog/entry/the-3-success-tips-that-can-change-your-life

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3 comments

  1. BusinessFirstFamily

    Can’t say enough about outsourcing guys. It’s really important for any business to compete. Know what you’re good at and leave the rest to contractors.

  2. The important aspect of success in business is cash flow. So it is important to flow the cash effectively and efficiently. The most difficult aspect of the business is finance. There are some points shared in this article that you should avoid for business success. I had come through some new information through this article. As I am a businessman I should consider these points for proper cash flow to be successful in business. These mistakes can lead to heavy debt burden. Once you are in debt you have to take help from debt relief program to repay the debts. Thank you for sharing helpful article.

  3. Awesome post.

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