When you look at the small-scale business sector, they are very much busy with the various activities of their daily business and might forget that managing the cash flow is most important aspect failing which might kill your business.
The following are various cash flow mistakes which you need to prevent:
- Forced growth: instead of a rapid and sudden forced growth, it’s always better to have a gradual rise in a business growth. A forced growth could involve you in paying more salary to your staff, the rollout of a new project, bigger space to accommodate your staff and clients, spending more than required amount over AD’s which could add to higher expenses. Necessary steps have to be taken to prevent loss.
- Too much spending on sales: always lifetime value of the customer should be higher than the acquisition cost. Acquisition cost is the amount spent to gain a customer and the lifetime value of a customer is the total revenue generated by a customer over a year.
- Incorrect profitability calculation: before you calculate profit you need to always look for various parameters such as transaction fee, marketplace commission, shipping cost, cost of return, costs involved in inventory storage etc.
- Ignoring seasonal nature of business: these are the businesses which run over a period of time and not throughout the year. As such they would be overflowing with cash during peak season and might face difficulty in handling daily cash flow. There should be enough financial plan made so that you would be able to manage the additional costs that might incur in your non-profitable season as well.
- Improper tax management: tax is one of the most important aspects for every business. Whether you like to pay or not it is mandatory for you to arrange the necessary amount and pay the tax before the due date as it might attract interests and penalties. It’s always better to take the help of an expert who can suggest you and help you to know how much you may need to keep aside for your tax.
- Not preparing in advance for the act of God: as no one would have control over these sudden and unexpected damages its always better to be one safe side by getting insurance for your business. This would help you in running your business with at least minimal requirements. There is no other way to escape but only thing is to have an emergency fund.