• Lionel Pavey

Don't make these mistakes with your cash flow

Updated: Jan 3, 2018

1) Unrealistic sales forecasts - there is a fine line between being optimism and reality. It is natural to assume that your business will succeed - otherwise you would not carry on. But this must be tempered by also being realistic. Look at the current data and be conservative in your estimation about the future.

2) Impulsive purchases - it is your business and every penny counts. Initially try and limit your spending to the bare essentials needed to start your business.

3) Submissive to debtors - unpaid invoices are the quickest way to run out of money. Ensure that your client is aware of your terms and conditions, including penalty fees for late payment, and be prepared to enforce them.

4) Not having a buffer - there will always come a time when business is slow. Ideally you should have a balance equal to 3 months' business expenses to cover you in times when business is slow.

5) Not all income is wages - you need to pay yourself a wage, but your company also needs money to grow and invest. Try to pay yourself a decent wage and bank the rest for your business.

6) No cash flow forecast - always know how much money your business has at any time. The reality of your cash flow is different to your accounting. Knowing the future is difficult - but if you have no forecast for the future then it becomes impossible. Know what your operating expenses are and when your taxes are due.

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