Small business cash flow mistakes to avoid

Impulse spending during the early stages

A common saying in business is that it takes money to make money, but many entrepreneurs can misinterpret this and end up overspending in their first few months of operation. Starting any business requires expenses, but it’s important to remember that not all startup expenses are equal. If you want your business to be profitable, it’s essential to keep your eye fixed on your bottom line and carefully consider the cost-benefit of every single one of your purchases. Create a realistic budget to stick to and a revenue forecast so that you can come up with a plan for your business to break even.

Not keeping a cushion of savings

No matter how many steps you take to safeguard your company’s cash, interruptions in your cash flow are a reality of running a business. This might not be an issue if you have plenty of savings available, but if your company is operating from an account balance of zero, a month of slow sales could lead to disaster. In order to prevent this from occurring, it’s a good idea to maintain an account balance of the equivalent to two months of expenses. This way, if your cash flow is disrupted, you have some savings to back up your business temporarily.

Overestimating future sales volumes

One of the most important qualities an entrepreneur can have in order to be successful is optimism so that they can take obstacles in their stride. However, being too optimistic can spell disaster for your cash flow.

It’s important to bear in mind that not every potential customer will make a purchase from you and to remember that while your sales might increase slightly over the holiday season, it is unrealistic to assume that they will double. This is why it is essential to complete realistic and objective sales forecasting based on real numbers and historical evidence.

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