If your business is not on top of cash flow, you will experience problems — sooner rather than later. Check out the top 5 financial mistakes that can tank a small business and learn how to protect your company from catastrophe.
1. You don’t follow up on past-due payments
Small to medium-size business owners juggle a lot of duties, and oftentimes the first thing to go out the window during busy season is follow-up. When you do not demand prompt payment of invoices, you send the message to clients that they can pay late with no consequences. You also sabotage your cash flow and may not be able to afford utility payments or inventory. Master your follow-up with past-due payments to get back in the black.
You may also want to consider invoice factoring for your invoices to get you immediate capital for your accounts receivable.
2. Your prices are too low
The majority of SMB owners undervalue their services — which means their clients are getting a too-good-to-be-true deal. In the long run, this negatively impacts your business because it keeps you working too hard for low funds, which often leads to burnout. One rule of thumb with costs is not to absorb rising prices. If your suppliers have increased their prices, take it as a sign you need to do the same.
3. You don’t forecast or budget
Savvy business owners forecast, or estimate how much money they’ll bring in, and budget, or allocate how that money will be spent. When the forecast is overly optimistic, they adjust the budget so they aren’t spending more than they’re bringing in. If the forecast is too pessimistic, they might save extra money for leaner times or decide to splurge on items from their wish list. If you aren’t forecasting and budgeting, there is no way you can plan for a sustainable future for your company.
4. You increased fixed costs too soon
Fixed costs, which recur every month, account for the majority of business expenses. Too many small business owners increase their fixed costs without an understanding of whether they can afford to do so…and without realizing how every impulse spend affects their operating costs. When you start to increase fixed costs everywhere because you’ve signed on a few new clients, it can drain your business finances before you realize what you’ve done. As a general rule, try to be lean and only increase fixed costs when operating the way you’ve been doing is painful — for instance, when you’re taking too many client meetings to justify desk rental at your local coworking space.
5. You don’t understand business expenses
While some business owners keep track of all business-related expenses by, for instance, using a separate business credit card, many don’t know how much they are spending on the business because business and personal finances are mixed. When business owners don’t know the true costs of operating their business, they can’t evaluate profit and loss. They can’t guarantee service prices reflect their true bottom line. By tracking every business expense, even if it’s under $5, you can get a true picture of your operating costs. This prevents you from overpaying business taxes and helps you set prices that reflect your work and expenses.
Shifting your approach to financial management can save your business and your peace of mind. If you’re ready to stop stressing over cash flow, examine how you approach each of these aspects. By tweaking the way you handle money, you can boost your business health and vitality.
FreshBooks Blog tackles the subject of daily tracking of business expenses and offers a 30-day free trial.
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Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.