Or, how to screw up your cash flow. Not the positive note you are supposed to start any article with, but this is pretty much the biggest thing to go wrong with small businesses.
Let’s be honest, if you screw up your cash flow then you have pretty much lost control of everything in your business.
The Top Cash Flow Screw Ups
These are our take on the most common cashflow mistakes that small businesses make;
1 – You Will Get Paid When You Think
No you won’t. If you invoice on 14 days then allow 28, if you invoice on 30 days then allow 60. If you are working for a customer much bigger than you then don’t even bother worrying about your terms of business. You will get paid when they get round to it, in this case budget for about 60 days.
2 – Everyone Will Pay You
No, it just will never happen. We see businesses quote things like ‘we have never had a bad debt’, to which it is easy to add the word ‘yet’. It will happen and not everyone will pay you. Regardless of how good your terms of business are, sooner or later you will not get paid. Don’t stretch your cash so far so that you are reliant on having to get paid by everyone.
3 – Forgetting Your Tax
Death and taxes are life’s only real certainties. If you are trading profitably then remember that you will need to pay tax. If you are VAT registered then make sure you know when this needs to be paid. HMRC are less flexible than they were, so make sure you budget or set aside some cash to cover your tax. Also remember that tax is paid on profits, not on how much cash is in your account, don’t get caught out.
4 – Profit is Not Cash
The reason why you have a P&L account and a Cashflow Forecast is because profit and cash are different. You can make a profit but will not have the cash until the customer has paid you. During this time your overheads still need to be paid, from cash.
5 – I Forgot About That
You know when that invoice or bill arrives and you had completely forgotten about it. These dents in your cashflow are often the straw that breaks the camels back. Get a decent bookkeeping system in place, use it yourself and put all invoices and bills into it as they are incurred, it will really help reduce the number of ‘forgotten’ bills.
This is a top 5 based on what we have seen, and experienced, over the last 12 months. If you can avoid these cashflow mistakes then you should be better off. If you have any queries then please contact us on 01293 541333 or add your comments below.
By Dave Farmer