5 Cash Flow Mistakes New Businesses Must Avoid

Finance expert Mike Periu on the most common mistakes small businesses make, and how to avoid them.
December 04, 2012 Debt solutions attorney Emily Chase Smith has seen many small businesses fail throughout her career. She finds it frustrating that many of the businesses, especially newer ones, fail for reasons that were completely avoidable with better financial planning on the part of the founders.

She offers the following advice to business owners to avoid failure:
1. Don't underestimate your cash needs. Business plans tend to be overly optimistic. Double your estimate of cash needed to ensure a good margin of error.
2. Don't spend more than is required. Many founders have a difficult time distinguishing between what is needed and what is simply a "nice to have." You may want to have a nice office, but if you can meet at your clients' offices, then a single, sublet office unit should be enough to start.
3. Take your time hiring. If you hire too many people too quickly you will be spending too much money on payroll—money you may not have—and people's roles will not be clearly defined.
4. Buy used whenever you can. Buying used equipment, furniture, vehicles, etc. can save significant amounts of money. Going out of business sales from other companies is a great place to buy what you need at a discount.
5. Have an exit strategy. You should have a "good" exit strategy (like selling a business) and a "bad" one (what to do if you have to go out of business).

Learn more at Inc.com.

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