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7 Common Cash-Flow Mistakes Entrepreneurs Make

You have enough to worry about starting up. Don’t add cash-flow management to the list.

Question: What's a common cash-flow mistake I should be on the lookout for as I start my first business?

Have Reasonable Payment Terms

"If you are bootstrapping a business, try to avoid lengthy payment terms. Regardless of whether you are shipping widgets or software, waiting 60 plus days for payments will kill your working capital. If you are doing 30-day terms consider invoicing more often: bi-weekly instead of monthly, for instance. That will keep you from having to wait too long for money to come in."


Mind Your Cushion

"Operating with no cushion, unexpected expenses will pop up. Maybe some of your equipment is damaged or an irate customer sues. If you're operating on a shoestring budget without any wiggle room, incidentals like that could ruin you. And be aware of the planning fallacy. Things always take longer and cost more than we think. So inject a healthy dose of pragmatism into your budget forecast."


Save for Taxes Now

"When you start in small business, it's a good rule of thumb to put 30 percent of gross revenue (simplistically, the total dollar amount of checks that come in the door) in a business savings account where it can't be mistakenly used for expenses. You'll thank me when you do your taxes for the first time."


Get Ready to Chase Companies for Payment

"Whether or not your clients are honest, the larger they are the longer it takes for them to pay you. They can be very slow. I've seen it take more than six months. You have to chase them or factor the payment. If your work tends to be in big pieces, it can be devastating to be missing $10,000 for a few months."


7 Common Cash-Flow Mistakes Entrepreneurs Make

You have enough to worry about starting up. Don’t add cash-flow management to the list.

Question: What's a common cash-flow mistake I should be on the lookout for as I start my first business?

Have Reasonable Payment Terms

"If you are bootstrapping a business, try to avoid lengthy payment terms. Regardless of whether you are shipping widgets or software, waiting 60 plus days for payments will kill your working capital. If you are doing 30-day terms consider invoicing more often: bi-weekly instead of monthly, for instance. That will keep you from having to wait too long for money to come in."


Mind Your Cushion

"Operating with no cushion, unexpected expenses will pop up. Maybe some of your equipment is damaged or an irate customer sues. If you're operating on a shoestring budget without any wiggle room, incidentals like that could ruin you. And be aware of the planning fallacy. Things always take longer and cost more than we think. So inject a healthy dose of pragmatism into your budget forecast."


Save for Taxes Now

"When you start in small business, it's a good rule of thumb to put 30 percent of gross revenue (simplistically, the total dollar amount of checks that come in the door) in a business savings account where it can't be mistakenly used for expenses. You'll thank me when you do your taxes for the first time."


Get Ready to Chase Companies for Payment

"Whether or not your clients are honest, the larger they are the longer it takes for them to pay you. They can be very slow. I've seen it take more than six months. You have to chase them or factor the payment. If your work tends to be in big pieces, it can be devastating to be missing $10,000 for a few months."


See Also: 10 Elements to Adjust in Your Pitch to Different Investors

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