How Not to Make These Common Cash Flow Errors

When you start a business, you’re expecting a long journey, but many enterprises end prematurely because they lack cash in the bank. The ultimate source of power for a small business is cash. So it’s crucial to manage cash flow effectively to avert a possible calamity.

Too many businesses underestimate their cash needs. A cash budget is like a map to your destination. Follow its projections to accomplish the results you want; deviate from it, and you may not have sufficient cash available to reach your objectives. Time your expenditures to correspond with your budget so you don’t spend more than needed.

Watch rent costs

Rent and payroll costs are common budget-busters. Pay just the right amount of rent for just the right amount of space. This gives you a cash cushion that grows so that it’s ready and waiting for a bigger and better location down the line.

Similarly, when you hire people before they’re needed, you’re spending money without the tangible results to show for it. Only after training does a newly hired person deliver value for the employer. Add staff slowly and only after you have clearly defined roles for them.

Failing to seek out bargains is another error. For example, finding used equipment and furniture at a discount will save on unnecessarily high startup or expansion costs.

Lastly, cash management is all about a worst-case forecast. Every entrepreneur needs a disaster exit strategy – even if it means liquidating assets or laying off employees before things get worse