Just because your business is profitable, doesn’t mean it’s a success. On the contrary, if your company doesn’t have a stable flow of cash, it’s unlikely to go the distance.
According to the research firm CB Insights, cash flow issues affect almost 30 percent of small and mid-size businesses and are the second most common cause of small business failure.
From seasonal sales lulls to unanticipated expenses, there are numerous reasons that a business may be experiencing cash flow challenges. Here are some common cash flow mistakes to avoid, along with tips for keeping your company in the black:
Mistake No. 1: Neglecting Payroll Taxes
As a business owner, you have a lot of fiscal responsibilities on your plate, from handling payroll to writing checks for vendors. While you might be tempted to push payroll taxes to the bottom of your priority list, this decision could prove costly. In fact, neglecting to file IRS form 941 could result in your business going under and leave you as the owner financially liable.
Mistake No. 2: Avoiding Calls From Creditors
Getting harassed by creditors can be a stressful experience and even a humiliating one. However, you should avoid the temptation to ignore those annoying phone calls until you have the cash to pay your bills. If your business owes money, it’s best to contact your creditors and discuss a payment plan. By negotiating these debts early on, you keep your borrowing ability, and your business, in good standing.
Mistake No. 3: Allowing Late Payments
At one time or another, every small business struggles to pay the bills. And in many cases, the culprit is late-paying clients. While it’s natural to want to give your loyal customers a break and be flexible about collecting payment, this generosity can put your business at a serious disadvantage. To minimize potential problems and keep your cash flow healthy, it’s important to create a clear policy for dealing with late payments and collections. Not only does setting these policies show customers that there will be a consequence for neglecting to pay but it also saves you time down the line, as you won’t need to have an internal conversation about what to do every time a bill is late. For best results, create a policy that contains a late fee charge. Additionally, you may want to explain that you will stop working on a project if payment is 30 days late or more.
