![]() This is the business equivalent of living paycheck to paycheck. Businesses put their futures at risk by taking too much cash out of the business and not reinvesting it or establishing cash savings. This has really been highlighted by the pandemic as many businesses have gone under. One mistake I see all the time when it comes to managing cash flow is not preparing for economic downturns. Not Preparing For Economic Downturns Or Hardship Lots of companies don't do the work to plan for cash flow, especially when it comes to collecting debts from customers faster than paying suppliers. Not engaging in financial planning through the use of budgets and cash flow projections is a major mistake. Spending some time on planning and managing cash flow is important. To rectify this, start with anticipating looming shortages of money before such a situation arises. If you do not have a good idea of past and current income and expenses, then you are likely to make this mistake. Not having a long-term cash flow outlook is the number one common mistake that many of us make. Daniel Lucas, Credo CFOs and CPAs / CVG Advisors Short-to-medium-term cash flow analysis and scenario planning are ignored, resulting in a scenario where an owner “gets ahead of their skis.” The added operating structure puts a drain on earnings and cash flow on future revenues-some or all of which may or may not ever manifest. The emotional pitfall of near-term success ignores a deeper exploration of what the outlook for the industry is and the company’s ability to scale or execute. On the heels of a great quarter or landing of a major customer, we have observed entrepreneurs who run headlong into an expansion of investment, such as aggressive new hiring or a new facility expense. One potential impact on a company’s cash flows can stem from an entrepreneur’s early successes. ![]() There is a fine line between confidence and reckless bravado.
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