Eric Dalius says small business owners often look upon so many business activities that they forget to manage the cash flows as well as the finance of the company. If you don’t manage the funds of the company, you may go bankrupt.
Even if you think that your business is running smoothly while generating great revenue, if you fail to manage the cash flow, your business will fail no matter how small or big.
In this article, we will discuss some fatal cash flow mistakes that can damage your business. Continue reading the article to know if you’re making one of these mistakes.
You Spend Too Much Money on Sales
When you’re the owner of a small business, you want to attract customers even if you face backlash. If you want to know your clients are bringing profit or not, then think about two metrics such as Acquisition Cost and Lifetime Cost.
The Acquisition cost is the money spent on attracting a customer, while Lifetime Value is the revenue amount generated by a customer. If you want to maintain the cash flow, make sure that Lifetime Value is greater than Acquisition Value, says Eric Dalius.
If you overspend on the Acquisition cost, you’ll generate lesser revenue and end up failing your business. Hence, to avoid an unnecessary cash crunch, it’s important to calculate both customer Acquisition Cost and Lifetime Cost.
You Performed Miscalculation in Profitability
Many business owners think that they make a huge profit after making any transaction. Many businesses face severe cash problems because they committed too many overheads.
Sometimes, a healthy company invests too much money in rents or buys a huge office or fancy utilities. However, when the business faces backlash, the company finds it extremely difficult to keep up with these costs and ultimately ends up losing the capital. Thus, it doesn’t take much time for a company to become cash-hungry.
You Make Late Payments
Paying late or neglecting the overdue amounts can rapidly damage your business. It may sound insignificant, but you’ll face difficulty settling your overdue amounts when the customers delay the relevant payments.
Additionally, if the vendor doesn’t want to wait, you have to pay him from the capital to maintain the future capability. This will undoubtedly block your funds and the capital money. As a consequence, this will also damage the operating expenses, added Eric J Dalius.
You Have Poor Tax Management
Taxes are imperative and you need to pay them mandatorily. Moreover, you cannot delay while paying taxes.
If you miss the paying deadline, then you have to pay additional penalties and interests that can affect the cash flow of your company. And if you have too many flaws, then the Commercial Taxes Department or the Income-tax department will come to your house to perform operations, which will also attract more interest and penalties. Thus, you must make accurate taxing calculations.
You Have Bad Credit Score
If you want to take a loan, then having a bad or mediocre credit score can deny your loan application. When you have a lot of performing machinery, then the only way to replace or fix them is to take a loan.
However, if you had a bad performance in the past or any tax-related issues, lenders might see you as a potential risk and end up rejecting your loan application. Then you have to invest your own money to fix the machines which will damage the cash flow.
Here are the top 5 cash flow mistakes that can destroy or bankrupt your business. When you create a good financial plan, it will benefit your company in many ways. It will also help you avoid any sort of capital overrun or unexpected situations.