Here we will discuss few of the most common cash flow mistakes in any small or large business at its Beginning..
As we all know that the small business owners are always overloaded with the tons of activities revolving around their businesses and here they have a little time for managing their cash flows .. And also on the other hand, Mismanaging the company,s funds can lead to the total failure of their business..
The reason why ? Many Company fails In the beginning is because they cannot manage their cash flows..
Find out if you are making one of these mistakes or Not..
1.) Forced Growth - Here the more cash is to be paid to the staff, Higher than needed is spended, Bigger office for accomodating more people and clients.. All these Greater expenses made are forced growth..These tasks need to be handled rapidly..As too much loss of cash can severly affect the day to day operations..
2.) Spended Too Much on Sales - There are two metrics to identify..
a.) "Acquisition Cost" of the Customer , Which is the Amount Spent on gaining the customer..
b.) Other Is The "Life Time Value" of the Customer, Which is the total revenue generated by a customer over its life span..
It is to be ensured that the "Life time value" is greater than the "Acquisition Cost"..
If the Life Time Value is more.. Than a positive impact can be seen to the company,s Business..
In the Acquisition Cost there are some hidden costs and these can affect your Cash Flow badly .. The hidden costs are likely to be Salary of the sales person, Mobile and internet connection ( Amount spent ) His commissions etc..
3.) Incorrect Calculation Of Profitability - While preparing the Balance Sheet at the end of the year, Many companies realise that they had made losses as they did not consider the, Market place Commission , Transaction Fee , Shipping Cost , Cost of storing the Inventory , and also the cost of returns..
4.) Overdue Amounts - Late receipts against your invoices can made a big trouble to your business. A s , when your customer delays the payment it would be Difficult for you to pay to your Vendor..
If your Vendor cant wait for his payment, Then it means you have to pay him off to maintain the future credibility,. It can block the major fund of your working capital and it will be difficult to you to make the operating expenses easily..
5.) Improper Management Of Taxes - This is the process which is mandatory to be paid and whenever you miss the deadlines , It can attract the interests and the penalties that can badly affect the cash flow.. And if there are several defaults Ten the income tax department and the commercial tax department can come for an audit and it can leads to more penalties or the interest on penalty..
6.) Cost Of Hiring - For our Fast Business growth we sometimes took the wrong decisions we hire the wrong people like we hire two sales executives we give them 30% hike in their previous salary we provide them training for a month and expected too much from them till 4 months they achieve only their 15% and then we let them go here the Company looses the funds because of the bad hiring.. Here the company has to Suffer..As here Cash flow of the company is Mismanaged..
7.) Miscellaneous Hidden Costs - Some miscellaneous hidden costs may be the Insurance Coverage, Credit card dues , Permits , Licenses , Overdue Employee Benefits , Commercial and Legal fees etc..
