3 Worst Cash-Flow Mistakes Businesses Make

3 Worst Cash-Flow Mistakes Businesses Make One of the most important parts of running a business is making sure you have a positive cash-flow which will allow your business to run and operate smoothly. However, many business owners still have difficulties when trying to handle this integral task. Whether your troubles with cash-flow happen because of poor management or the cyclical nature of the field your business operates is, the ultimate results will be the same, your business will begin to struggle and may ultimately fail. In fact, cash-flow is the number one reason businesses fail with as many as 82% of businesses failing because of cash-flow related issues. With that in mind, it should be apparent that you have to do everything within your power to maintain positive cash- flow. To help you out, today we are going to take a look at three worst cash-flow mistakes businesses make and how to fix them. 1. Being passive about your past-due receivables Let’s start off simple. Your cash-flow will ultimately depend on the money you receive from your customers, so if they aren’t paying you on time, you can start really struggling to keep things under control. A common mistake most businesses make is just letting their past-due receivables slide unnoticed as they don’t want to make a hassle or jeopardize their relationships with the customer. While this can be sensible in certain cases, if people start noticing that you don’t have any particular penalties for them paying you late, they will most likely start abusing your generosity. Because of this, you should make sure that you provide them with adequate incentives for paying you early, such as small but meaningful discounts. However, you should also put penalties in place that will increase the price if they don’t pay on time. While these two tools put together will definitely better your situation, sometimes they just wont be enough. Luckily there are a few alternative options you can use to aid you. Most notably, you can look for outside help through different financing options, which will help you get the money you are owed immediately. For example, invoice finance can allow you to get a quick loan secured against your outstanding invoices and receive up to 95% of the money you are owed within a 24 hour period, with the rest becoming available when the invoice is finally fully paid. This and other similar methods are a great way to ensure your business doesn’t struggle with cash-flow while at the same time not endangering the relationships with your customers. 2. Not planning ahead with realistic expectations Another big mistakes businesses tend to make is not planning their finances ahead of time with realistic expectations, or for that matter, not planning at all. While trying to plan out your finances can be really challenging because of the many unpredictable factors that can impact your business it’s still a crucial process you have to take care of if you want to keep a healthy cash-flow. First of all, it will allow you to predict what your expenses will be with reasonable accuracy, which will allow you to locate them and minimise them or completely eliminate the unneeded ones, freeing up additional capital which will have a positive impact on your cash-flow. With that being said, it’s also very important to keep an objective look at your predictions, especially when it comes to predicted sales. It’s always better to undervalue your future income as it will give you time to find ways to deal with the problem, instead of putting you in a bad situation unprepared. 3. Ignoring the importance of an emergency fund Even if you do everything that’s within your power to maintain a healthy cash-flow, sometimes it just won’t be enough, and sadly that’s the reality of the business world. Because of this, you should always aim to have an emergency fund which will help you get through those difficult times. While this can seem somewhat self-evident, a lot of businesses, especially new ones, tend to ignore the importance of an emergency fund and choose to put all of their money into the business in order to encourage growth, which more often than not ends up costing them everything. There are just too many unpredictable factors that can impact cash-flow and even if things look great today, the tides can drastically shift in a matter of days. It’s highly recommended that you keep an emergency account balance equivalent to at least two months of operating expenses, which should be enough to help you get through the rough patch. Conclusion While the mistakes listed here are only a few of many that businesses tend to make, correcting them will definitely put you on the right path towards a healthy cash-flow which will allow you to establish a solid foundation from which you can further grow and expand your business.