During our time working with small business owners, we have come across some intriguing money-management practices by clients. Cash flow management is one of the biggest mistakes that entrepreneurs make and can, in some cases, mean the difference between a successful venture and one that bleeds cash.

Here are some of the money management mistakes we have worked with our clients to address:

1. Paying the business’s bills based on the amount of money in the bank account. This is one of the most common mistakes that business owners make. If you are paying bills based on the “squeaky wheel” practice, you could be negatively impacting the bottom line. Having a budget in place and understanding the business’s cash flow will keep bills paid and money flowing.
2. Impulse buys. As a business owner, you will be approached by individuals offering you goods or services and may find that you succumb to these purchases without determining whether you need them, whether you can afford it, or whether it will truly benefit your business.
3. Extension of credit. The decision on when, or if, to extend credit to customers is one that must be undertaken with great care. The extension of credit to a customer that is not credit-worthy will negatively impact cash flow. If you’ve decided to extend credit, ask the customer to complete an application and ask for references including bank references. Determine the upper limit of credit you will extend and firmly establish repayment amounts and times. Along the same lines as extending credit, is allowing your receivables to age.
4. Collecting on invoices and payments due is not an easy task for the business owner but allowing receivables to age puts your business in a financial bind. The need to stay current on collecting payments from clients cannot be stressed enough.
5. Paying bills as soon as they come into your mailbox. Wanting to foster a good relationship with vendors is a reason cited for paying bills early. While it is crucial to pay bills on time, the need to maintain a consistent cash flow is more important to your business’s financial future.
6. Buying in bulk. Savings can be reaped by purchasing in bulk but inventory loses value as it sits on your shelves and makes cash unavailable. Weigh the benefits of saving on bulk purchases over having the cash available for other purchases and operating expenses.
7. Letting payroll costs get out of control. Allowing payroll to creep up to unmanageable levels is an issue faced by many business owners. It’s tempting to allow employees to work overtime or fulltime rather than part time, especially when you’re just starting out having the additional help may seem necessary. Business owners need to have a specific dollar amount in mind before hiring employees and must account for the payment of workers’ compensation, payroll taxes, and other payroll costs.

Adhering to a budget is crucial to your financial success and working with a trusted accounting firm can help you formulate a business plan that puts your enterprise on a firm financial footing from the beginning.