Guest Article
- Failing to track expenses
If you neglect tracking your expenses, you can end up spending far more than you think. For a new business in particular, you can be eager to get new customers even if that means taking a loss to gain that new customer. The same can be said when you’re searching for a new employee to hire. There are quite a few acquisition costs that some business owners may overlook. For established businesses, it can be easy to lose track of traditional expenses that may continue to pile up while offering less and less value.
Examples of these expenses can be out of date phone systems and tech support contracts. Unless you regularly track and evaluate these expenses you can severely harm your cash flow. Diligently track your one time and recurring expenses so that you always have an up to date picture of where you stand in terms of cash.
- Being difficult to pay
Depending on your business, you may have survived for years without accepting credit cards or allowing online payments. Today’s customers have more options than ever in ways to make payments, and if you’re not flexible in how you can be paid you’ll likely scare some potential customers away and end up with a higher percentage of late paying customers. Talk to current and potential customers and ask them how they’d prefer to pay and adjust your business to accommodate them.
- Not cracking down on late payments and overdue invoices
Few things will destroy your cash flow and your business as quickly as late paying customers. Many a business has looked successful on paper while they struggled to keep the lights on because their receivables piled up for months. The best way to avoid late payments is by being proactive. There are several strategies businesses can implement to nip this kind of customer behavior in the bud.
- Demand payment up front (or at least a percentage up front depending on your business).
- Make late payment penalties clear up front in any estimates or contract that you make customers sign.
- Invoice customers immediately once you’ve completed the work. If you don’t show some urgency in getting them the invoice, they likely won’t show you any urgency with the payment.
- Offer incentives for early payments like a small discount
- Poor management of taxes
You may not like paying taxes, but they must be paid. Many businesses run into trouble each year by failing to manage their tax situation. Failure to keep up with quarterly estimates, or incorrectly estimating taxes can lead to wild swings in your cash flow or excessive penalties that can ruin a business. Working with a tax professional throughout the year can help you avoid riding the tax rollercoaster. Whatever you do, you’ll want to make sure you don’t leave yourself in a situation where tax time ends up crippling your cash flow.
- Not preparing for the least expected
If you don’t know what’s coming, how do you plan for it? While there’s no hard and fast rule for preparing for the unexpected, businesses can certainly benefit from having some type of an emergency fund. It’s important to have an extra stash of money for when the roof needs to be replaced, a major piece of equipment needs to be fixed or someone tries to take you to court. If there isn’t some money set aside types of events could put you out of business.
For the long-term health of your business it’s important to have a clear picture of your current cash flow. Put business processes in place to make sure you maintain a healthy cash flow in the future. If your company has gotten by without addressing the items listed above, you could be playing with fire.
About the Author:
Kim Phillipi is President and owner of Building Science Academy, LLC. This startup formed in 2009 and operates Greenfit Homes, a construction business, and JobFLEX, an app development company.