Organized Bookkeeping

How to Decrease your Business Cash Flow

There are a million ways to spend money on your business.  Some of them are smart moves; and some of them will quickly deplete your bank account.  Here are a few ways to deplete your cash reserve.

Extend credit to everyone who walks in the door.

Not everyone is a great credit risk.  It’s even more tricky in business, when people charge items on account.  Are they behind on their bills?  Perhaps you are a new vendor because they haven’t paid the old one?  Call their references, make the first few invoices for cash, and for good heavens, if they aren’t ethical, don’t loan them money.

Put it on the Card

Business credit cards can be a great source of airline miles and convenience.  However, if you aren’t paying them off monthly, or the balance keeps growing, take a second look at what you are spending.

No Budget

No budget implies no spending plan.  If you don’t know what your goal is, pretty good chance you are going to spend money on items that don’t support the business.  I’ve seen relatives hired, vehicles bought, and office supplies purchased.  No purpose, just because.  Save up on all the unnecessary purchases and save that income for a nice vacation.

Taxes

Corporate and self employment taxes can be north of 35%.  Plan for it or Pay for it later.

Payroll

It does no one any good to haphazardly hire a new employee, only to let them go a few weeks later.  Make sure you have a plan and job description.  Make sure there is sufficient work.  Interview multiple people, even though you might already have the perfect person in mind.  Hiring and then firing friends and relatives can be especially difficult.  Make sure you give a proper vetting process.  Then again, it might be the best person you have hired.

Ignoring Revenue Cycles

Know your business cycle and budget accordingly.  We would wonder at a farmer who didn’t save the lumpy income to pay expenses during the non-harvest times.  Consider if you spending money that is meant for a future payment.