The 7 deadly cash flow sins (and how to avoid them)
It’s confession time. Are you guilty of any of these seven deadly cash flow sins?
Pride, wrath, greed, lust, sloth, gluttony and envy can all negatively impact your cash flow, but they don’t have to.
Here’s how to avoid the seven deadly cash flow sins.
Pride – It’s ok to ask for help
Proud business owners can be their own worst enemy.
Rather than admit that they need help, they often struggle on and try to solve the problem themselves.
But, when it comes to cash flow, this approach can be a recipe for disaster, as the associated issues often escalate the longer they are left undealt with.
Whether you need help chasing customers to get back what you’re owed or help accessing funding to provide the necessary cash flow to succeed, the sooner you act the more likely you are to be successful in your efforts.
Whilst the initial step of asking for help can be daunting, always remember that needing assistance is not a sign of failure.
No-one can be an expert at everything and trying to be one is only going to cause extra stress.
So, if you need help, ask for it.
Wrath – Be assertive, not aggressive
When a customer pays late it can be infuriating.
In these circumstances, it can be tempting to apply some aggressive credit control tactics, but this is never the answer.
Whilst a firm but fair approach to credit control is recommended, once your assertiveness becomes aggression you risk much more than not getting paid.
You risk losing the customer and damaging your reputation and your brand.
Arguably, losing a persistently late payer isn’t going to be a great loss, but if the customer is usually good at paying they’re unlikely to respond well to aggressive tactics.
Instead, learn how to politely chase late paying customers to help you get paid and maintain your relationships.
Greed – Don’t grow faster than you’re capable of
In many cases stepping up your goals and aiming higher is good for business.
But if you get too greedy and try to take on too much work, it could negatively impact your cash flow.
So, before you take on any large orders or high volumes of sales, always ask if you have the resources to fulfil the job effectively without putting your business at risk.
This is particularly important when it comes to credit control.
With late payment causing businesses to wait even longer to get paid, cash flow can become stretched.
Therefore, it’s essential that you have enough resource to dedicate to effective credit management to reduce the chances of getting paid late and protect your cash flow.
Lust – Do you really need it?
Overspending is one of the easiest ways to damage your cash flow.
This usually happens as a result of lusting after things that are not necessary for success.
Whilst it can be tempting to always go after the latest technologies and developments, if you don’t have the money you need to learn to say no.
Whether you want to invest in new machinery, property, staff or branding, always ask what impact it will have on the business.
Do you need it in order to be successful? And do the ends justify the means?
If not, it’s not a necessary purchase.
Going forward write a list of all the things that you’d like to purchase, then prioritise them in order of which ones are the most important for success.
This will ensure that you don’t overspend on unnecessary things.
Sloth – Be persistent
When it comes to cash flow, laziness is potentially the most damaging sin of them all.
Failing to dedicate enough time to monitor your cash flow can put your business’s survival at risk.
This is true across all aspects of cash flow management. If you apply strong credit control tactics for a short period and then slacken off you will lose all of the benefits and could be subject to more late payments.
If you set a budget and never revisit it, you could find yourself overspending and without the necessary working capital to meet your commitments.
And, if you start cash flow forecasting but don’t regularly update your numbers, you could fail to spot upcoming cash flow shortages until it’s too late.
This highlights the importance of always remaining persistent in your efforts.
To overcome the power of procrastination, keep a list of everything that needs to be done.
Having it in writing will act as a visual guide to keep you on track and ensure that no tasks are forgotten.
If your procrastination stems from not having enough time to do all the things that you need to do, consider hiring more resource or outsourcing some tasks.
For more tips on managing your time, read this blog on how to deal with an overwhelming workload.
Gluttony – Learn to delegate
Some business owners find it hard to let go of certain tasks.
But putting too much on your proverbial plate could be doing more harm than good – particularly if it’s putting your cash flow at risk.
You can’t do everything by yourself – something that’s particularly true when it comes to credit control.
With late payment showing no sign of disappearing, the time businesses spend chasing overdue invoices is increasing, often to the detriment of newer invoices which are approaching their due date.
This can then create an endless cycle of late payments.
It’s therefore important to learn to delegate and prioritise your credit control tasks so that you always remain on top of your sales ledger.
If you do not have the necessary internal resource, you may want to consider outsourcing all or part of this function instead.
This will give you the time back to focus on other aspects of your business whilst your invoices are safe in the hands of the experts.
To help you decide if bringing in external help is right for your company, here we look at some of the reasons, risks and rewards associated with outsourcing your credit control function.
Envy – Focus on your business
A sense of competition can be good for business, particularly if you are able to use your competitors’ successes to propel your own business forward.
But when you spend more time worrying about your competitors and their successes than you do your own, your cash flow could suffer.
Every business is different and will therefore reach different levels of success at different speeds.
If you try to keep up with a business that has more resources than you do and scale faster than you are able to, your cash flow can become stretched and put your survival at risk.
So, instead of constantly trying to compete with other businesses in your market, focus on your own business and what you can achieve in a sustainable way.