You can have the best product in the world, but if you run out of cash, your business will fail. Many businesses struggle with cash flow, and it often comes down to one critical error: making business decisions based on the bank balance alone. This is one of the biggest cash flow mistakes.
The Bank Balance Lie
Your bank balance only tells you what cash you have right now. It doesn’t tell you:
- What bills are due next week.
- How much GST and PAYG you owe the ATO.
- Which clients haven’t paid their invoices yet.
Making spending decisions without this information is like driving blindfolded.
How to Avoid This Mistake: Use a Cash Flow Forecast
The key is to look forward, not just at today. A cash flow forecast is a simple tool that projects your incoming and outgoing cash over the next few weeks or months. It gives you the business financial help you need to anticipate shortfalls and make proactive decisions.
To improve cash flow, you must:
- Know Your Numbers: Use your accounting software to track all upcoming bills and expected customer payments.
- Forecast Regularly: Create a simple forecast at the start of each week.
- Plan Your Spending: Only commit to large expenses when your forecast shows you will have enough cash to cover them and your other obligations.
Don’t let your bank balance fool you. A forward-looking cash flow forecast is the best tool you have to avoid common mistakes and keep your business financially healthy.
