Starting a new business takes time, and plenty of cash flow. Once you’re finally up and running, expect to rely on your funding and capital before you can come close to turning a profit.
Making smart financial decisions is key to getting your business to a positive cash flow point. Otherwise, poor cash flow management can be detrimental to your business – many studies have pointed that start-ups and small businesses fail and cease operations due to inadequate cash flow.
Here are some of the common cash flow mistakes that small business owners make.
1. An overestimation of future sales volumes
Many successful entrepreneurs share a key trait: relentless optimism, which is critical to help one persevere in the face of so many obstacles. But it is also important to turn to objective and realistic forecasting based on real numbers and historical evidence. Use actual past revenue data as a foundation for tracking trends and anticipating future sales. This can help you overcome unrealistic expectations, for instance, when you expect sales volumes to double over the holiday period.
Revenue forecasting can be challenging during the initial stages of business since you don’t have much past sales figures to work with. You can use past revenue data from other businesses in your industry, along with some objective intuition, to help you come up with realistic future sales projections.
2. Spending too much during start-up phase
Starting a business involves plenty of expenses, from facilities to equipment, furniture and staff – but they should be clearly beneficial for your business’ profitability in measurable ways. If your small business deals with goods, make sure to monitor your inventory. This will help you manage your cash flow and prevent from over-purchasing items.
Create a realistic budget and keep track of how much money you’re spending and how much you’re saving. Take note of every expense as well, and consider the cost-benefit of it. You should also calculate when you plan for your business to break even – whenever any unexpected expenses or opportunities for spending come, go back to your projections and calculate how the purchases will delay your break-even point.
When your business is starting out, you are likely to start looking for a suitable workspace too, particularly a cheap small office space for rent
to help save some cash. Located within Pasir Panjang, our property at 34 Boon Leat Terrace offers affordable small offices for lease
just within a stone’s throw distance from major business areas like Alexandra Techno Park and Mapletree Business City. It is accessible via West Coast highway and Pasir Panjang MRT station for easy daily commute. Comprising of warehouse and fitted offices, this light industrial building is often favoured by logistics and shipping firms, and small businesses that wish to be in close proximity of their business partners and clients. E-commerce businesses
are also able to store their inventory, fulfil orders and improve goods procurement for their customers. Unit sizes range from 272 to 4,752 sqft – with furnishings like air-con, windows, lights and carpet available. Other facilities include 24-hour access, 4 loading bays, and season parking for cars & heavy vehicles.
3. Inconsistent review of accounts receivable
Unpaid invoices from clients can affect a steady cash flow and hit small businesses hard. If payments are falling behind, take immediate steps to speed up the collection process as this can drain your working capital, especially when it’s tied up in receivables.
Create an internal timeline of procedures to determine when you will send the initial invoice, payment reminders and make collections phone calls if past invoices are not paid yet.
4. Not keeping a reserve of cash
Facing hiccups in your cash flow is a business reality, no matter how many safeguards you have in place to protect your company’s cash. Try to maintain an account balance that’s equivalent to at least two months of operating expenses – so, if you experience any emergencies or when sales take a dip, you have reserves in place to protect your business.
Once your cash flow and profits have grown and stabilised, you might be looking to expand your business operations with a bigger space. Our property at Phoenix Park offers small and large office spaces, starting from 362 to 23,662 sqft, furnished with basic amenities like lights, air-con, windows as well as an attached washroom. Surrounded by lush greenery, this cluster of colonial-style buildings formerly served as the location of the Ministry of Home Affairs. While it is often compared to Dempsey Hills due to similar offerings, Phoenix Park appeals to many businesses with its competitive rental pricing and 10-min drive to Orchard Road. Apart from free parking, there is also free regular shuttle bus service available to and from Redhill MRT station, and a bus stop located near the main entrance for easy accessibility.
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