Avoid this Terrifying Mistake that Causes 82% of Business Failures

There are a number of challenges that you are going to face as a business owner. Unfortunately, being great at what you do is not enough to succeed. You also need to have sound business sense, especially when it comes to finance. One of your top priority should be developing a system to manage your cash flow.

There are a number of reasons that businesses fail. However, by far the biggest cause of business failure is poor cash flow management. A study by US Bank showed that 82% of all business failures are due to poor cash flow.

The unfortunate reality is that the average business owner is not very knowledgeable about finance or bookkeeping. They usually have backgrounds in specific industries other than finance. Fortunately, you can minimize the risk of failing by understanding common cash flow mistakes and trying to avoid them.

Hire a qualified accountant

If you don’t have a background in accounting, then you don’t want to be balancing your own books.  You need to make sure that a qualified expert is taken care of them.  It is also important to work with accountants specializing in helping small business start-ups such as Fusion Accountants.    

Pay close attention to overdue accounts receivable

One of the biggest reasons that Business is running the cash flow problems is that they don’t manage their accounts receivable well.  You could run into all kinds of financial issues if your customers aren’t paying on time. It is a good idea to have a good collection policy in place.

Get an auditor to look for internal shrinkage

Employee theft is one of the biggest causes of business failure.  You can’t take a huge leap of faith about trusting your employees. It could be the biggest mistake of your life. You will want to hire an auditor to help see if your employees are business partners are stealing from you. Keep in mind they could be stealing cash or inventory, so you need to do your due diligence. Before you dismiss this risk, you should know that employee theft costs businesses $50 billion a year.

Don’t get carried away with long-term capital investments

As a business owner, you need to think of the long-term. However, you also need to make sure that you have enough cash on hand to cover your immediate expenditures.

One of the biggest mistakes that businesses tend to make is investing too much in long-term capital. You might be tempted to Investing solar panels to save money on electricity. They will pay for themselves over the long term, but it could take 20 years or more. It is really going to depend on how much electricity your business needs.

If you spend $30,000 on assets that are going to take 20 years to pay for itself, you might not have enough in the bank to cover your rent or payroll. It is a good idea to invest in some long-term capital, but you need to run the numbers carefully and make sure you are not compromising your immediate expenses.

Pay off your higher interest debts first

Most businesses have to take on some debt to grow. You need to manage this debt wisely. If you have extra revenue in a given quarter, one of the best investments you could make is paying off your old debt. You should start by paying off the higher interest debt, because you will save a lot more money over the long term.

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