Business Finance Startup

6 Cash Flow Mistakes Your Startup Is Probably Making

Written by MicroStartups

Having an idea and launching a startup is just a small step on the way to success.

If you were to ask anyone with more experience, they would advise you that healthy and steady cash flow is the main factor which will determine whether your business will thrive or fail. With so many things you need to look after when running a startup, it is easy to neglect certain aspects and find yourself on a path to failure.

So, to help you avoid that, we’ve compiled a list of six cashflow mistakes your startup might be making:

Forgetting about the paperwork

Keeping up with the paperwork is a gruesome task for most of us, but failing to do so can leave you in many problems.

It would be best if you had this in mind since it is more likely that state agencies prefer to deal with new and small businesses who have more chances of making paperwork mistakes or failing to fill it out.

Penalties that follow these audits are sometimes so high that it would make you reconsider whether you should even continue with your job. But even if they are not, why would you want to pay if you can avoid it?

Make sure you read up and learn about all the specifics needed to operate your business correctly, and what your local laws require.

Not planning your finances

Running any business effectively and profitably means having to continually make plans and stick to them.

One of the biggest mistakes you could make that could seriously hinder your cash flow is not planning your finances properly. Being able to predict and plan for cash flow shortages is a trait of a successful and dedicated manager. These things are common in any line of business, but they could be avoided, nevertheless with proper planning.

So, when it gets to a point where you get some bills you didn’t expect, or when a client is late with their payments or you have a bad month, you will be prepared and know your course of action.

Even though you won’t be able to predict everything, effective planning will help you in recognizing those cashflow obstacles before they even take place.

Doing your own accounting

Do not fall into this trap just because you run a small business! Many business owners choose to go this way instead of asking for a piece of bankruptcy advice as they feel like they can do it themselves, or that they don’t want to spend more money.

However, it could end up costing you even more! When you get caught in the paperwork after months of work, or when you are unable to wrap your head around your business transactions, you’d wish that you’d hired outside help. It might even lead to insolvency or bankruptcy.

One of the main reasons why companies become insolvent is inappropriate accounting, where you fail to follow the company’s cash flow plans, which can result in overspending. These expenses quickly rack up, and without enough money coming in, your business is set for failure. Thus, it is more cost effective in the long run to hire professional help.

Failing to prioritize good bookkeeping

Many startups, especially new ones, fail to grasp the importance of solid bookkeeping, and recording every transaction that you’ve made. And being successful means knowing everything and being able to retrace your steps at all time.

It is essential to be aware that there are no small transactions and that all of them should be adequately recorded. That way, at any time, you will have a clear insight into your business and your startup’s financial wellbeing.

Organised information about your firm should be at your disposal at any given time, and it will be much easier to follow the cash flow.

In the end, keeping track of all receipts and transactions will make it easier for outside accountants to do a better job if you choose to hire them.

Not having a backup plan

The conditions on the market today are such that you can’t always be aware of what’s going to happen, and where your business is headed towards. Things could go wrong at any time, without you even realizing it.

Thus, being prepared for such occasions, even if they never occur, is the wisest and safest way to save your startup from failure. Having some emergency funds that you could tap into is almost a necessity, and it could even make a difference on whether you’ll go bankrupt or successfully sail through.

There are a couple of ways to handle this. The best way is to have a savings account where you will occasionally deposit money. Accumulating money this way takes a bit of time, but it is risk-free and safe.

Alternatively, you could get a line of credit, which is a much faster route, but it requires you to pay more. Just make sure you do this only in the case of utmost necessity.

Overspending

Hurting your cash flow is most easily done through overspending, and most startup owners fall into that trap in the beginning.

That being said, there are more reasons why you might be spending way more than necessary. It might be that you are reckless and oblivious to the fact that it might hurt your business, or you have the opinion that to make money you need to spend money.

Whichever it is, some discipline and planning won’t hurt. Without it, you won’t be able to protect your cash inflow.

The best way to get disciplined and become aware of your overspending is to analyse everything and make a list of all your expenditures. After that, you could prioritise them, and decide where you could draw the line, get rid of some of them. Only things that are fundamental to your future operations should stay.

Running a startup takes a lot of effort and mental strength, and you are bound to make mistakes, one way or another, especially if you are new to the business.

However, some mistakes are more costly than others, and it would be wise to observe what other startup owners have done before you and try hard to avoid doing that. By doing that, your business will stand a much bigger chance of surviving in this already saturated market!

About the author

MicroStartups

A team of writers and marketers, MicroStartups was founded to inspire the entrepreneurial and business community to give back. We believe in business growth through giving and supporting the local community.

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