Do You Make These 7 Deadly Cash Flow Mistakes?

Managing cash flow is every small business owner's most important function. Avoid these seven deadly mistakes to make sure you aren't creating cash flow problems in your business.

1. Using the "Fly By The Seat of Your Pants" Accounting Method.

When tax time rolls around do you find yourself pawing through piles of paper on your desk looking for credit card receipts from your business trip? Or are you upside down digging under the seat of your car trying to figure out where all your gas receipts are? Are you wondering if that coffee stained piece of paper is an invoice from a supplier? Do you have a vague feeling that someone, somewhere owes you money but, you just can't remember who it is? If so, you're probably guilty of operating with the "Fly By the Seat of Your Pants" accounting method.

Using this accounting method has a tremendous impact on your business's cash flow. Unless you have a system to track your business finances, you'll always be operating in the dark and in danger of imitating George of the Jungle as he slams into a tree.

2. Not Knowing What the Numbers Are All About.

Once you have a real honest to goodness useful accounting system that's where the real fun starts. You've got a bunch of numbers but what in the world do you do with them?

Understanding what the numbers mean is crucial to your cash flow. Are sales trending up or down? Are expenses rising faster than sales? Is one product more profitable or better selling than another? How much do I need to sell to meet expenses each month? Can I take a paycheck this month? The answers all lie in the numbers.

3. Mismanaging Credit: I Owe You, You Owe Me.

There are two ways to mismanage credit in small business:

1. Granting credit without wise credit policies

2. Using credit with no plan of how to pay the bill.

Both have a huge impact on your cash flow and are often closely related. Here's a scenario to demonstrate that point. You have an opportunity to work on a big project but to do the project you need to order materials. So, you order materials from a supplier who expects payment in 30 days but you won't receive cash for the project for 60 days (or 90). Immediately you've put yourself into a cash flow crunch that could take months or years to recover from financially. In the meantime you've passed on smaller jobs that would have provided quicker cash at less cost. And, if you're not able to come up with the cash for your supplier, you've endangered that relationship as well.

4. Ignoring the relationship between Receivables and Payables.

Do your Receivables and Payables "play nice" with each other? In a perfect world your receivables (what customers owe you) would be paid just in time for you to pay your payables (what you owe your vendors). But, if you're a small business owner you know Rule #1 is "Stuff Happens". The customer you thought would pay his bill this week, doesn't. So the bills you thought you could pay this week, don't get paid.

Are your Payables in balance with you Receivables? If what you owe to others is far more than what is owed to you, then, Houston, you have a problem.

And it's not just the balance that's important, it's the quality as well. If your receivables are as old as your Aunt Tilly, chances are good you'll never see the cash.

5. Focusing on profit instead of cash flow.

Ahh, Profit. The ultimate goal of every business. Or is it? Did you know that many businesses that fail are operating at a profit? How can that be? For the small business, cash flow is the ultimate goal. No cash flow. No business. Period.

What's the difference? Mostly the difference is in the decision making process. "If I take on this big job, it will earn me a huge profit, but if I take on five smaller jobs, I'll have cash to pay my bills." Yes, you want to be profitable but every decision has to be measured against the effect it will have on cash flow.

6. Forgetting your debt to society.

Some bills are easy to forget. Bills like sales tax, payroll taxes, estimated taxes. They sort of sit out there, almost off the radar screen. They don't have to be paid right away. It's easy to forget them until BAM! they're due and they're due right now. And you better have the money to pay them or you're in hot water with the Tax Man. That's not a place anyone wants to be. Pay them late or not at all and you end up with penalties and interest on top of what's already due. Cash flow problems result as you rob Peter to pay Paul. It can take months or even years to recover.

7. Spending your company's future on a speed boat.

Haven't you always wanted a speed boat? Or a fancy car? Or an all expense paid trip to the Bahamas? It might be tempting to try to pass your personal purchases off as tax deductible business expenses. But, it's a bad idea for two reasons.

The folks who work at the IRS are over-worked but they're not stupid. The last thing you need is an audit. An audit that could reveal your transgressions and could result in an unexpected tax bill plus penalties and interest. Again, huge cash flow headache!

Here's the other reason it's a bad idea. Are you spending your company's future on frivolous or unnecessary expenses? Small businesses operate close to the edge. Unless you have a reserve to see you through the tough times, you're always in danger of being on the wrong side of that edge. You've got to take care of the golden egg laying goose first. Then, you can pay yourself a properly taxed bonus and buy all the toys you want.

Learn cash flow secrets from the Cash Flow Master. Sign up for a free mini course from veteran small business consultant, Caroline Jordan MBA. Visit http://www.TheJordanResult.com/mastering.html and start learning the keys to good cash flow management today.

In The News:

---

Preparing to Launch Your Small Business

Small business owners often enter their field with great expectations.... Read More

The Business Failed, But Did You?

Q: After years of dreaming about starting my own business,... Read More

Serious About Writing A Business Plan... Start A Business Plan Library

Tap these treasures of ideas. The best money you can... Read More

Take a Break - Have a Pity Party

Pity parties are nothing new. In fact, we do it... Read More

How To Get Slightly Famous in Print

Early in my career, I wrote an article for a... Read More

If You Want To Be Remembered...

Send handwritten notes. That applies whether you're a guy or... Read More

Effective Customer Interviews Make Life Much Easier!

One of the critical success factors for service-related businesses is... Read More

Too Many Lawyers in Franchising Today

Attorneys and Lawyers are ruining the franchise industry. It is... Read More

Attributes Of Companies You Don?t Want To Buy!

There are no "rules of thumb" in the pursuit of... Read More

Where to Find a Cash Windfall of $10,000 to $1,000,000 -- You Never Knew You Had

There is a rather famous true story called "Acres of... Read More

Shortcuts Will Kill Your Business

Think of your business as a living, breathing, organism. It... Read More

To Buy Or Not To Buy: Lawn Mowing Business

TRUTH IN THE LAWN MOWING INDUSTRYWe do not wish to... Read More

Leverage The Power of Publicity For Your Small Business

Your business is only as good as the number of... Read More

Small Business Essentials: Start Here

Thinking of starting a business on line? If so there... Read More

5 Steps To Success for Small Business Owners

Everyone wants to succeed in life. Most people want to... Read More

Small Business Marketing Series ? Choosing a Niche Market

Many smaller businesses choose niche markets for various reasons and... Read More

Creative Business Card Marketing

Announcements can be handed out as a business cardAnnouncements can... Read More

Definition of Security: Small Business Owner

Yes, that IS security when nobody can downsize you because... Read More

Building Your Business for Success in 2005

It's a strange anomaly.Most people who set out to start... Read More

Small Business Credit Card Advantages

Obtaining a business credit card enables the small business owner... Read More

Is a Small Business Web Site a Wise Investment?

One of the greatest pitfalls in e-commerce is Field of... Read More

The Failures Guide to Small Business Success

How many "get rich schemes" have you joined? Or have... Read More

Encouraging Your Customers to Pay On Time

Nothing can drive a business down faster than customers who... Read More

Small Business Success: Thriving During Change (And Landing On Your Feet!)

If I had $1.00 every time I heard someone say... Read More

Are You Making the Most of Your Intern?

KEEPING INTEREST HIGH: Supervision is key to the success of... Read More

Growing Your Small Business Through Alliances and Joint Ventures

-- Beyond Cold Calling, "Warm" Calling and Sending E-mails --Many... Read More

Firing Underperforming Employees in Your Small Business

Here are a few tips on how to hand out... Read More

Drivng Home the Point - An Outsourcing Story in China

A few years ago, I visited Beijing for the first... Read More

Financial Fundamentals - What Every Small Business Owner Should Know!

Business owners rarely go into business to deal with the... Read More

Window Cleaning Business Case Study

How do window cleaning franchise businesses start? It is a... Read More

Your Practice is Only as Valuable as Your Referral Base

Many physical therapists in private practice have the appearance of... Read More

Common Mistakes When Planning Your Medical Spa

Everything starts with a business plan: If you don't have... Read More

Do I Have to Do EVERYTHING Myself?!

The air in my client's office nearly crackled with her... Read More