The owners of small companies already have thousands of activities for their business and don’t have time to manage their cash flow on their company finances. However, any single mistake in cash flow can also the cause of failure in your business. In this post, we are discussing the cash flow mistakes that may really hit your business. If you also a businessman and makes one of these mistakes then learn how to avoid these.
Spending too much on sales
In the small business, it is very important to attract new customers even the cost of the product is experiencing losses. There are two ways to identify that your client brings your the expected profit. One of them is gaining cost to the customer, which means that the amount spent on the gaining of one customer. And the other one is the lifetime value of the customers in this way the business total gathered revenue by the customers over their lifecycle. The lifetime value is greater than gaining cost, this way create a positive effect on the cash flow of the company. To more spending on gaining cost have a very limited return. Numerous businessman feels hesitate on this point because they think if they have more customers they earn more.
There are so many hidden elements of the gaining cost, for example, salesperson salary, commission, mobile and internet connection bill and many more. To calculate the gaining cost, first, you should add these direct costs. If you don’t do this, you will automatically burn money more than you earn and its effect on your cash flow.
Improper Taxes management
Taxes are the fine of good performance, it sounds weird but it is true. Taxes are the constitutional which are compulsory that has to be paid mandatorily however you like or not, it has to pay when it is due. If you miss deadlines, it can increase interest that can affect cash flows. If any businessman has many dues taxes, then the commercial taxes dept. and income tax debt. knocking your door for the audit operations. However, taxes are accounted and the correct calculations are made the financial plan. So, the businessman has to consult with someone who identifies the amount of tax that he will pay in the year-end. It is based on the growth plan of the company for the upcoming year and financial statement presented by the ministry of finance at the start of the financial year.
The sudden changes in taxes amount can also disturb the cash outflow. It usually happens in service tax where rates are suddenly rising and falls. It is always good in such uncertain statutory. I am creating a long-lasting impact and, make sufficient necessities of the year that will be beneficial for the company.
Ignoring credit scores
Having a bad credit score that can create difficulty when you need small loans. When you lost the main parts of the machinery and the replacing cost is very expensive then you have only one option to get small loans. But if your past performances are not well, the investors might feel the risk of giving you short term loans. At last, you secure your machinery or other personal assets as the guarantees for the loan. That has a vast risk in the long term.
It has hurt badly in the past that we hired three managers from the reputed company, their resumes were very perfect and full of achievements. They demand a 30% hike and we agreed with them, we provide them with one-year training and we start hoping and expect that these guys will make our sales double because they look extremely productive. Nothing happens for two months and the sales rate is still the same there is no improvement from new hires. We think they might some time for adjustment in a new place then we waited another month but the progress was still the same when we finally decided to let them free. Did you notice that what happened here, we waste our four months and that badly hurt our cash flow?
Other hidden expense
Some costs look unimportant in the start but that is accrued after passing years when they affected and left the dent to the entire company.
These can be unseen employee attrition, credit card dues, insurance coverage, licenses, commercial and legal fees and much more. These additional costs cannot be seen in starting but may create the worst result and it’s just because of lack of knowledge of the manager.
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