7 Cash Flow Mistakes Every Entrepreneur Makes In Their First Year

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Everyone starts out thinking they know it all, only to discover soon enough that they don’t really know anything — and you get to start this process all over again when you take the plunge into the entrepreneurial world. The early stages are rife with confusion, a mixture of anxiety and misplaced confidence, and so many mistakes.

Most of the mistakes can be endured, though, and they end up proving to be extremely useful. You learn more from failures than successes, after all, and if you somehow managed to skate through your startup phase without a care in the world, you’d only really be setting yourself up for a much worse struggle down the line — and at a much more damaging time.

But that doesn’t mean you’re bulletproof. Make enough mistakes in certain areas (particularly financial), and you can run your business into the ground before it’s had a real chance to grow — and the biggest of those areas is cash flow. Cash flow weighs the money you’re making versus the money you’re spending, and if you latter keeps outstripping the former, then your company can crash (even if you’re technically profitable). That’s why you need to be vigilant.

That’s why the best thing you can do is read up on what tends to go wrong. That way, you can ensure that you don’t make the same mistakes (at least not all of them at once). To that end, let’s take a look at 7 cash flow mistakes that entrepreneurs tend to make in the early days:

1. Ignoring it entirely

It’s the simplest and the most obvious, but that doesn’t stop it from happening: some entrepreneurs get so caught up in the excitement of the road ahead of them that they completely look past their financial situations. They assume that everything will work out monetarily if they make their businesses strong enough with compelling products and/or services.

That isn’t so, of course. You can create a company that’s extremely impressive on paper, but if you don’t balance your books, you’ll never get a chance to take advantage of that quality fully. You’ll run out of funds, close, then wonder what went wrong. It all seemed so promising. Since the right circumstances for building a business don’t come around very often (that perfect soil of financial support, availability, will, passion, and creative purpose), you mustn’t waste them.

2. Getting fixated on profits

Profit isn’t everything, even though that surprises a lot of people. In the long term, it’s the most important thing, but a profitable deal can’t always preserve your business. It’s all about timeframes. Imagine this scenario: you spend most of the money you have saved on products that you’re going to sell at a 60% markup, and you’re 100% sure that the deal will go through, but you’re not sure exactly when.

While you’re waiting to recoup your money plus the large profit, you hit some customer payments, and your savings are wiped out. Suddenly, you can’t afford to keep the lights on, and you’re not getting back on your feet until you get the profit from that big sale. Despite arranging a fantastic deal, you ran aground because you couldn’t hold out long enough. Remember that you’re running a marathon, not a sprint, and it’s the long term that matters.

3. Failing to value time

As an entrepreneur with the skills necessary to run their own business, you’re evidently a fairly talented and capable professional. That means that your time is valuable — valuable enough that you should certainly charge for a consultation if you were to provide one. So how should you spend your time? Should you take an entire day to handle a task that could be automated just to save spending money on the software solution?

There are certain tasks and projects, of course, that warrant close attention, while others represent a wholly inefficient use of your time. A SaaS business owner, for example, can justifiably dedicate their schedules to improving their product or generating new sales leads, but they should rarely need to concern themselves with the intricacies of cybersecurity or server maintenance: for that, a reliable yet cost-effective SaaS hosting provider such as Cloudways can be leaned upon, ensuring they can focus on business growth and not technical complexities.

4. Not optimizing scheduling

When you’re dealing with regular payments (whether they’re weekly or monthly), there’s invariably some leeway with the payment schedule. That’s completely normal and makes a lot of

sense because businesses don’t adhere to the same working patterns and can’t always pay (or receive payment) on specific dates.

Where entrepreneurs go wrong is in failing to rearrange schedules to make their lives easier. If you have several huge payments to make each month, and you’re allowing regular customers to pay you after those payments, that’s a clear flaw that can lead to your cash flow drying up. Ask for customers to pay as early in the month as possible, and move your due dates to be as late as possible (if you have any staff, use software to automate payroll for the last day of each month). In the event of a cash flow crisis, it will buy you some time.

5. Spending carelessly

Getting pizza delivered for lunch every day. Buying the latest and greatest pieces of office equipment. Spending large sums on social gatherings for friends and family members. Getting a company account can be extremely dangerous for some entrepreneurs, making them feel rich and leading to a lot of money being wasted. The solution isn’t easy, but it is extremely simple: cut the waste. Stop spending frivolously. Limit the business account to essential expenses.

Your money should be going towards investment in your future: namely recruitment. Save most of your profit, and put the rest towards bringing in the best talent you can find. A well-chosen apprentice today could be your company’s most valuable asset in 10 years.

6. Not charging enough

You do need to be careful with your first clients because they hold a lot of power over you. Quite often, you actually owe them to some extent — maybe they gave you opportunities in good faith when no one else would or put up with some teething troubles. That’s entirely understandable, but what isn’t is failing to charge for what your business is worth (yet plenty of entrepreneurs get into the habit of being too modest about their operations).

It’s a curious psychological quirk that each customer will take a cue from you when gauging the value of whatever you provide. If you charge a large amount, they’ll assume you’re worth it. If you charge very little, they’ll think you’re only worth that much (if you were worth more, you’d be charging more). So while you shouldn’t charge too much, ensure that you charge appropriately — if in doubt, look around to comparable companies and see what they ask for.

7. Being too lax with invoicing

As with not charging enough, some new business owners get scared to push their clients for payment. They don’t want to rock the boat, so they allow them to keep putting it off. This is simply unacceptable, and if you want to have any long-term success, you need to address the matter as early (and as decisively) as you possibly can. A study of UK-based businesses found that a third of SMEs dealing with late payments were contending with payments more than two months overdue.

Every invoice you make should feature clear payment details and numerous payment options to make it harder for the payee to find an excuse. It should also contain a deadline, as well as information about what will happen if said deadline isn’t met. Steer clear of having one stance on late payment across the board, though, because every client is different. Retailers sort their customers using buyer personas because they know that customers have distinct preferences and patterns of behavior — you should learn from this.

Making one or two of these mistakes can be fine. Making all of them? That’s a death sentence for your business. Avoid as many as you can, and it’ll greatly improve your chance of seeing a second year.

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