Don’t let optimism compromise your objectivity
Although a common thread with entrepreneurs is an eternal sense of optimism, it’s important to avoid overestimating your sales volumes. You should be realistic with sales forecasting. A good way to do this is to use quantitative forecasting methods. You could also work with a business mentor who can guide you better.
Avoid engaging in impulse spending
Make sure that you keep an eye on the bottom line. While you need to spend some money when running a business, it’s important to consider the cost benefit of every single expense. Create a realistic budget and stick to it.
Keep track of unpaid invoices. Don’t ignore them.
Be proactive about collecting payments from your clients. You could introduce late payment penalties and strict collections policies.
According to Entrepreneur.com: “Good policies include a 5 percent late penalty after five days and work stoppage after 30 days past due.”
Another way to improve payments, would be by creating a timeline. You could create reminders for sending invoices, when payments should be made as well as when collections should be made.
Not using a cash flow budget
It’s important to track your day-to-day cash flow. You can use a cash flow statement to track the inflow of revenue and the outflow of expenses. A business requires cash to run smoothly, so it’s important to know exactly what you are spending on.
Not having savings on hand
A simple way to create a savings cushion is by maintaining an account balance equivalent to at least two months of operating expenses. This way you are able to prepare for unexpected stalls in cash flow. Keep in mind that running a business can be quite unpredictable. You should also rein in unnecessary spending and stay alert to potential pitfalls.