Money attracts money. Liquidity affects the way a business operates. Entrepreneurial enthusiasm and creative thinking can only get you so far; what will actually sail your boat through tough stretches is a reliable stream of finances. As small business owners, you may feel helpless when it comes to garnering help in terms of finances. In this article, we talk about useful ways you can steer clear of financial pitfalls, develop useful foresign and use smart footwork as you go about your business.

  1. Cash Flow Forecast to Avoid Guesswork in Decision-Making

It’s common for small business owners to operate without a working budget. They don’t update their cash flow forecast often. The decision making is spontaneous and approximate, instead of being calculated. Thus, no one can tell if the decisions bring benefits to the business or doom. Dedicate a well-planned budget every month with considerations like sales revenue, variable costs and fixed costs. Break down your sales revenue for better understanding. 

After you have accounted for profit or loss on your budget, create a cash flow forecast. A cash flow forecast is an estimate of the flow of cash that goes in and out of business over some time. A cash flow forecast accounts for the time a customer takes to pay the business, the time taken by the business to turn over inventory, time for payment to suppliers, due payment of loans and even forthcoming capital expenditures. 

2. Avoid Capital Expenditure from Cash Flow

Most optimistic business owners give in to the temptation to purchase tech gadgets, office space or hire the most credentialed employees. They burn up their financial cushioning over things that are not of utmost importance or necessity. It’s best to free up the cash flow from any short term capital expenditures. 

Track the business spending and be cautious with surplus cash unless you have projections for an upward trend on the cash flow and strong evidence. Spend money only to support the lifeline of your business.

3. Meet the Tax Obligations

No matter how small, businesses have different tax obligations depending on their geographical location, size of operations, and type. Businesses should be compliant with tax obligations, preferably in instalments spread across the financial year.

Businesses with a clear view of how much taxes they pay can then ensue legal measures to reduce the amount of tax they pay and save more for their cash flow.

4. Drive Revenue

Sometimes businesses are so blinded by cost-cutting as a way to increase profitability that they overlook the need to drive revenue. Especially in the case of small businesses that operate on the bare minimum, there is hardly anything to cut. But if you look at it, the opportunities to grow the business and the incoming revenues are plenty. 

It is best to manage the business growth while being within the limits of the cash flow. Increasing the number of customers, the number of times they purchase, and the average sale value on each sale can drive revenue. Small business owners should enforce working strategies to increase these three revenue drivers.

5. Seek Financial Help

Operating a small business doesn’t mean you do not get to enjoy the fore-sighted perspective and financial pool that big business giants find access to via banks readily. Suppose you do not know which bank will offer you a loan and how to approach them. In that case, bizhero.com offers interesting search functionality that helps businesses search for vetted loan providers based on details like the desired loan amount, tenor, industry and the reason they need a loan.

In the End

Business success is all about hit and trials, but these financial blunders are tried and tested failures. Small business owners will fare better by avoiding these common financial mistakes that forecast doom. We hope you save your business, ensure liquidity and steady operations with these useful tips.