4 Cash Flow Mistakes SMEs Make
Cash flow is one of the most important aspects of your business. Unfortunately, many business owners fail to properly manage their business’ cash flow.
A company’s cash flow management is often the deciding factor as to whether a business will succeed or not. Even if your business generates high profits or has a great business model, your business can still fail if you cannot effectively manage your cash flow.
Here are some of the common cash flow mistakes that many small business owners make:
Spending Too Much
Although there are a multitude of business expenses, including payroll, equipment, and inventory, always ensure that you spend your cash on the essential basics. Inventory and equipment should be checked and categorized so that you do not spend funding to purchase unneeded inventory or unnecessary maintenance.
To help manage your finances, keeping your business and personal finances separate is essential. Keeping these finances separate enables you to better track your own purchase history. Tracking your expenses can be an easy way to identify where you can save money.
Unfocused Customer Demographic
To generate revenue, your business needs customers. However, it can be challenging to attract potential customers if you do not have a targeted customer demographic. Ensure that when you sell your products and services that you fully examine your ‘ideal customer’ and that you focus your efforts marketing towards them.
An ideal customer profile details the type of customer that would benefit most from your business. This profile should be based around information and fact and be the primary focus for your marketing efforts.
Minimal Cash On Hand
Cash flow can be unpredictable. There can be a sudden drought or influx of customers, or a natural disaster or a pandemic can occur that severely disrupts your cash income. To help prevent these issues from being exacerbated, small business owners should have a cash cushion. Maintaining a sufficient cash reserve can help your business survive even during months when business activity has slowed or completely stagnated.
Late invoice payments make it difficult to manage your business’ cash flow and many small business owners find it a hassle to follow up on unpaid invoices.
However, not following up is even worse. If you do not implement late fees and penalties, your customers may take advantage of that decision. Be sure to implement the best practices when trying to make sure your invoices are paid in a timely manner.
One solution to overdue invoices that small business owners can use is invoice factoring. With invoice factoring, you can sell your unpaid invoices to a factoring company for an upfront cash advance based on the invoice amount. Factoring can help bridge the gap in your financing and help maintain a steady cash flow.
Accel Business Funding has provided invoice factoring and has funded many businesses for more than $380 million. When banks say NO, we say YES to funding in 24 hours!