5 Cashflow Mistakes To Avoid That Can Kill Your Small Business In 2022
Commencing a business is not easy but growing is even more challenging. Every entrepreneur is likely to stress over the smooth & efficient running of the business. Cash or funds invariably have a direct bearing on the operations of a business. Here are 5 cash flow mistakes every business should avoid.
1. Not planning for reliable revenues
Revenue is the backbone of every business and vital for its survival & growth. Business managers & owners should focus on creating steady earnings, in line with the long-term plan.
Focusing on creating sustainable products & services is considered to be one of the most effective long-term strategies. Providing affordable solutions ensures continuous demand.
Simultaneously, to ensure a steady flow of revenue, a product funnel for the target customer must be created. This means one should have a cluster of products that sits across an entire price range – affordable, mid-value, and premium. Affordable products might not yield substantial margins, but premium offerings do.
2. Not planning for high fixed recurring expenses
Fixed recurring expenses have frequently killed many promising enterprises. These expenses are of fixed nature like an office rent, salaries, etc. and need to be paid on a regular basis.
Often, these are contractual in nature. The outbreak of COVID19 saw many business owners struggle on this front and taught us all a valuable lesson.
The effective strategies include a payroll policy in case of an unforeseen circumstance and help a business to manage fixed salary outgo.
Similarly, if the current lease agreement doesn’t include a lockdown-like situation, one can speak with the lessor and sign a new lease agreement to cover the same.
3. Failure to think and act in terms of cash flow
According to a survey by US banks, 82% of companies fail due to poor cash flow management. This is more so in the case of a small business.
The most reliable indicator of poor cash flow management is when expense exceeds the cash. The best way to prevent such a situation is by planning and forecasting cash flows.
One should undertake a calculated risk considering the cash flow. Creating a buffer cash reserve to meet an unexpected expense can prevent such a scenario.
4. Not having a budget for marketing
Marketing is what gets one noticed and helps connect with potential customers. It is vital to inform people about the products and services.
Poor marketing will lead to a situation with limited reach and thereby lose sales opportunities. Therefore, it is imperative to create & stick with a marketing budget.
New business often requires big marketing outlay during the initial years. It is critical to measure the effectiveness of marketing expenses, therefore, one should measure its return on investment.
If some marketing plans don’t yield any results, it is best to try something new & make it work.
5. Failure to maintain and track your accounts
Monitoring expenses is vital for the financial health of an organization. To achieve this purpose, accounts need to be maintained on a continuous basis.
Many accounting software and tools are available to manage and track accounts. With updated records, tax filing is easy with a click of a button. It is vital to file tax returns on time to avoid penalties which can be severe.
It pays to invest in proper accounting systems with the help of software and manpower.
Hiring a professional is the best alternative in case of lack of required skill sets, funds, or knowledge.
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