5 Cash Flow Mistakes Entrepreneurs Must Avoid AT ALL COSTS!

Without proper cash flow skills, you will quickly run into financial trouble, which can ultimately lead to failure. In this article, you’ll learn the five biggest cash flow mistakes you, as an entrepreneur and business owner, must avoid at all costs.

1) Not Having a Plan in Place

One of the biggest mistakes entrepreneurs make is not having a cash flow plan. A cash flow plan is a detailed projection of your business's cash inflows and outflows over a specific period. It helps you anticipate cash flow problems and make informed decisions to avoid them. Without a cash flow plan, you're essentially flying blind, and you will likely not realize you have a problem until it's too late.

3) Not Setting Aside Money for Taxes

Taxes can be a significant expense for your company, and not setting aside money for this expense can cause serious problems with your cash flow. I have personally worked with entrepreneurs that were forced to pay hundreds of thousands of dollars in back taxes and penalties because they did not plan for taxes.

To avoid this mistake, you should set aside a portion of your revenue to pay for taxes. The exact amount you'll need to set aside will depend on your business's size, location, and tax obligations. By setting aside money for taxes, you'll avoid a situation where you don't have enough cash on hand to pay your tax bill.

4) Not Managing Accounts Receivable

Accounts receivable refers to the amount of money owed to your business by customers who haven't paid yet. If you run a cash based or eCommerce business, this may not apply to you, but it is still essential to understand the fundamentals.

Not managing your accounts receivable can lead to a cash flow shortage, as you may not have enough money to pay your bills or invest in your business. To avoid this mistake, you should have a system in place to track and manage your accounts receivable. This can include sending out invoices promptly, aggressively following up on late payments, getting payments or deposits up front, and setting clear payment terms with your customers.

5) Failing to Control Expenses

Finally, failing to control expenses is a significant cash flow mistake that way too many entrepreneurs make. It's easy to get caught up in the passion of your industry and the excitement of growing your business, but overspending on things like office space, employees, marketing, and a whole bunch of
other unnecessary shit will kill you. Overspending can quickly drain your cash reserves and lead to
financial trouble. To avoid this mistake, you should create a cash flow budget and analyze your results monthly. Be mindful of every dollar you spend and focus on investing in things that will help your business grow.

The Bottom Line

Cash flow management is a critical aspect of running a successful business, and entrepreneurs must have a good grip on these fundamentals to avoid the pitfalls these mistakes can create. By having a cash flow plan, being realistic about revenue projections, setting aside money for taxes, managing accounts receivable, and controlling expenses, you'll be able to manage your cash flow effectively and avoid unexpected cash flow problems. Remember, cash flow management is an ongoing process, and you should regularly review your financial situation with your financial team to identify potential problems and opportunities. By being proactive and vigilant, you'll set your business up for long-term success.