Posting by Jacqueline Thompson, CPA

Cash flow is one of those issues that always seem to be at the top of your mind – and for good reason. Proper cash flow is the foundation of a successful business.

Cash management is all about properly estimating your current and future obligations and weighing those against your projected in-flows. Time and again, I’ve come across the same mistakes that can derail even the most successful growing businesses. Make sure you avoid these financial and operational cash flow pitfalls:

1. Forgetting About Tax Payments and Tax Changes. There are a number of obligations that are easy to miss, and tax payments are at the top of the list. Consider carefully what your estimated tax obligations will be and when you will have to pay them. This is particularly important if you have expanded your business to other states, where you will be required to pay the requisite sales and use taxes.Additionally, make sure you know which tax breaks have expired/are going to expire and what new regulations may increase your tax bill. Your accountant should proactively keep you abreast of these changes to help you plan accordingly.
2. Ineffectively Managing AR. Many cash flow issues stem from inadequate management of the accounts receivable process. Prioritize this area of your business to make sure that your invoices are sent out in a timely manner and you know how many, and which, clients are overdue.
3. Overstocking Inventory. Yes, a bulk order will save you money, but not if it sits on the shelf and wrecks your cash flow. Work with your accountant to properly forecast your sales, and weigh the savings of bulk purchases against your sales opportunities before you tie up your cash in inventory you can’t sell.
4. Thinking You Won’t Ever Have a Cash Flow Issue. Even if cash flow hasn’t historically been an issue for you, there are no guarantees. Between the natural ebb and flow of most industries, game-changing regulations (sequestration, anyone?), and broader economic trends, most businesses are bound to have some tight times. As many companies found out this year, even unseasonably bad weather can cause issues. If you never think you’ll have to tighten the purse string, you won’t plan for it, and that is a grave mistake.

At the end of the day, you never know what lies around the corner for your business – or for you personally, for that matter. Managing your cash flow is all about planning for that future – both what you know is ahead, and trying to anticipate the game-changers you won’t even see coming. Unfortunately, it’s not an exact science, but by avoiding these key mistakes you can help make sure your business will have the resources it needs to thrive.