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Top Mistakes New Businesses Make with Their Cash Flow

Today, we would like to draw your attention to the possibility of overestimating your stock sales…the proverbial “jumping the gun” in business. Entrepreneurs with great business ideas have been over-estimating the value of their business and rate of sales for many years. And the outcome of course, is a depleted cash flow, which spells ultimate demise for the business.

What causes this so called “jumping the gun” and how can it be avoided? Understanding what mistakes other businesses have been making in this regard is a good starting point for you. Without much further ado, we bring to you the top (most common) mistakes new businesses typically make with their cash flow and how to solve them. For a comprehensive list you could view this article by BusinessKnowHow.

What Not to Do With Your Cash Flow

Here’s a sneak peek at what mistakes other businesses have made and are currently making. Learn from their mistakes so that your business can grow steadily.

1. Getting into credit card debt with the expectation of “big” sales too soon

Credit cards are tempting little things. They make spending feel a whole lot easier. You might be excited, and this can lead to over-estimating how well the business will do. Perhaps you go out and buy new equipment or invest in so much stock that you don’t have any cash flow available. Perhaps you have done some spending and suddenly your business credit card is tapped out too. Ouch! The problem is, the credit card needs to be paid off and if you are jumping the gun (which is exactly what this is), there’s a very big chance that you might not be able to cover that cost as quickly as you expect or hope to. Interest is a tough master – make sure that you avoid it in the early days.

Solution: Apply for a merchant cash advance as it provides cash up-front to the business with none of the stress and hassle of high interest rates attached. This type of financing allows you to get £5,000 – £500,000, which is typically paid into your bank account within 24 hours. Also, with a merchant cash advance, you can repay the “loan” at a rate that suits your business. For instance, on a bad month where you make no sales, you won’t have to pay a massive instalment on your debt. Merchant cash advance repayments are linked to your card terminal. Every time you make a sale, a small percentage of that sale goes towards your “loan” repayment.

2. Overlooking the need for finance separations

Picture this…you are starting out with a new business. Money is coming in and going out and you find yourself flustered. Your personal money is being mixed with your business money and the figures are starting to look a little “off”, but there’s no time to rectify the problem. There’s so much to do. Fast forward a few months and you are paying the price of carelessness. Having separate bank accounts for your business and your personal earning and spending is imperative if you want an accurate representation of how well the business is doing, how much money it is making, and how much it can realistically afford to spend.

Solution: Open separate bank, saving, and credit card accounts for your new business. Any money you spend personally must be paid back from the business accounts and vice versa; if you spend any business money, make sure that you rectify the issue and pay the money across as soon as possible. Keep track of all transactions that could possibly blur the lines between personal and business finances. If you do this from the very beginning, you will be saving yourself a lot of headaches.

3. Being a bit forceful with growth

It’s easy to get forceful with growth. You place an advert on social media and there’s a flurry of excitement and activity. You are flying high on the knowledge that people want your product and you’re making some sales. You get it in your head that if you increase your online advertising spend on social media, you will be able to double, triple, or even quadruple your sales. Wrong. This may work in some instances but doesn’t always. Forcing growth by spending more and more is a sure-fire way to cash-flow problems.

Solution: Take it easy. Allow your business to find its feet and don’t try to force any growth. Of course, you will need to start spending more on advertising and other growth avenues, but it is best not to do so too soon. Make sure that you are turning a profit and that you can afford to spend the money. It’s best to only spend money you can afford to. That means that if you spend the money and don’t make any sales from it, your business should still be firm and stable in the market. If you need to make money from your growth spending in order to get by, rather don’t spend it.

Last Word

Avoid making the same mistakes that so many other entrepreneurs in the UK have. Allow your business to grow slowly and steady. Treat your cash-flow with respect and watch as your business grows from strength to strength.