Five common cash flow mistakes business owners make

Managing cashflow (or lack of it) is one of the most common (yet avoidable) mistakes women in business make. It’s incredibly stressful when you’re looking at a bank account that doesn’t have enough cash in it to cover costs. Talk about losing sleep at night.

Managing your cashflow doesn’t have to be scary or overwhelming. Stop sticking your head in the sand, avoid making the following mistakes and consider our tips for how to improve your cashflow.

Five common mistakes women in business make when (not) managing their cashflow

    1. My bank account looks good, therefore it’s OK to spend money. Many women in business make major spending decisions based on how much money is in their bank account. They tend to forget that a business collects GST on behalf of the Government and some of that money is not theirs. If you don’t have a clear understanding of your true financial position it’s easy to make bad business decisions that can send your business broke.


    1. Help, I’ve got an impending cashflow crisis. One of the biggest mistakes women make is to only look at the business’ cashflow when a crisis is about to hit. At that stage it’s too late and you have minimal options to choose from – like short term working capital loans (with high interest rates). By forecasting your cashflow at least 12 weeks in advance you can predict when you might run out of cash and put solutions in place to avoid a crisis.To forecast your cash position, start by listing all the income you expect to receive and all your business’ expenses and when they fall due. Plan this for at least the next 12 weeks to identify any potential cash shortages. You can then put strategies in place to ensure your business has enough money to keep going. (See tips below for improving your cashflow). If you need a simple tool to manage your cashflow, Acceler8 Program has a free Cashflow Forecast tool for Google Sheets we can provide to you.


    1. Spending cash that’s not yours. Best practice is to put money into a separate bank account for GST, PAYG, Super and even insurances or industry specific professional memberships. You should also put money into a separate bank account for your personal income tax. Use PAYG Withholding Calculator to work out how much you should put aside.


    1. Overestimating future sales. It’s a fine line between being an optimist and being unrealistic. Optimism is a common trait amongst successful business women (what realistic person would persist in the face of so many challenges and stress)! It’s important to be realistic when forecasting sales, use actual sales data and industry benchmarks.


  1. Overspending on expenses. Ever said “You’ve got to spend money, to make money”? There is some truth to this adage but spending money you don’t have is a sure fire way of causing a cashflow crisis. You need to consider the cost benefits of every single expense. Remember, every dollar you spend on your business is one less dollar from your profit.

Avoid these five common cashflow mistakes and you’ll be in a better position to manage your cashflow and your stress levels. If you need more convincing that cashflow management is critical, here are three benefits of having a positive cashflow.

Three benefits of good cashflow management

    1. Stress relief. It’s easier to breathe when you know there is enough money in the bank to pay all your expenses this week. When you’re not stressing about cashflow, it’s easier to think clearly and make better business decisions.


    1. Build a buffer. Having cash reserves that you can draw on when needed helps women in business manage money when things are tight. Knowing you have enough money in cash reserves to pay critical expenses (like rent, lease payment on equipment, staff wages) for a month, helps manage the stress associated with running a business


    1. Funding for growth. To grow your business, you need cash. Whether that’s to employ more staff or build up your inventory, it all needs cash up front. If you can build a cash reserve, you can fund growth yourself rather than go into debt.


In addition to avoiding these five common mistakes, we have the following advice on how to improve your cashflow.

Tips for improving cashflow

    1. Pricing: getting your pricing strategy right is critical. Increasing your prices without impacting customer demand is going to have a positive impact on your cashflow (and overall business profitability).


    1. Volume: increase the range or number of products or services you offer, discount to attract new customers or sell into new markets to increase the volume of sales.


    1. Debtors: clients who don’t pay their invoices is one of the biggest cashflow killers – be proactive about following up your late payers. Consider your payment terms, carry out credit checks before setting up accounts. Issue progress payments or discounts for upfront payment.


    1. Assets: underutilised or unnecessary assets tie up cash that could be used in your business. Think about leasing rather than buying assets. Sell what you don’t need.


    1. Expenses: look for expenses that can be renegotiated (rent, maintenance service, utilities). Are there cheaper options? Are there any non-essential expenses? Take a close look at subscription costs and cancel what you’re no longer using.


    1. Inventory: for retail businesses inventory can be a major cashflow killer. Forecast your needs, buy and ship inventory as close as possible to the time of sale. Identify, discount (or return if possible) slow moving stock to free up cash and shelf space.


    1. Staffing: for most businesses staff are critical. In addition to staff wages, there are costs associated with hiring, training and rewarding staff. Getting the right people, in the right role and reducing staff turnover will help manage these costs and their impact on your cashflow.


If you need a tool to help manage your cashflow, contact Acceler8 Program for our FREE spreadsheet template or call us on 1300 222 353. We’re passionate about empowering women in business to have more money, more time and less stress in their lives. We do this by improving their financial literacy.