Common mistakes in cash flow management

Keeping your company’s activities under control cannot be done without proper cash flow management. Let’s take a look together at what the common mistakes in cash flow management might be. Before we begin, however, we must ask ourselves a fundamental question:

What is cash flow?

Cash flow is one of the main indicators to be monitored for the economic stability of one’s company: in fact, it represents the difference between cash inflows and cash outflows dedicated to a specific project or monitored in a specific time slot.
Cash flow allows you to determine the real liquidity of a company. In fact, if the subtraction between income and outflows yields a positive result (positive cash flow), the company has real cash. Otherwise (negative cash flow), the company is in a difficult situation: the expenses made are too high and the resources used must be immediately optimized to solve the problem and, therefore, return to have available liquidity.

The ratio of income to expenses can go to define total cash flow, which represents the company’s entire liquidity, or so-called operating cash flow, which, on the other hand, is generated by the company’s core operations and also excludes changes in capital, interest, taxes and other specific parameters.

Having clarified what cash flow is, let us now see concretely some of the most important and most common mistakes that can be made in its management, especially in the case of small and medium-sized enterprises

Error 1. Confusion of cash flow with operating profit

Cash flow and operating profit are concepts not to be confused. In fact, while the difference between a company’s actual income and expenses generates what we have seen to be cash flow, operating profit, on the other hand, refers to the difference between the costs incurred and the revenues billed by the company.
Operating profit is a record of the movements realized in a given period. If the balance is negative, the company will have incurred an operating loss; if it is positive, it indicates an operating gain.
Cash flow, on the other hand, highlights the amount of net resources generated in the period being analyzed. Remember: a company can have positive revenues but no cash or, conversely, have cash but operate at a loss.

Mistake 2. Making superficial analyses of data and business processes

Not investigating in depth the role of expenses, whether they are fixed costs or variable costs included in a business plan or, for example, not analyzing in the right way the values of actual sales of products or services, depending on the type of company considered, are mistakes that should not be made when managing cash flow.

Mistake 3. Investing without criteria

When you run a business you need to establish proper payment criteria such as, for example, timing, purchasing arrangements for assets necessary for the operation of your business. You must also plan for possible loans, balance expenses, and participate in tenders always in accordance with your possibilities. These possibilities must always be based on concrete data in order to avoid nasty surprises when you then concretely go to analyze the ratio between income and expenses.

Mistake 4. Focusing on costs without thinking about potential revenues

Increasing the liquidity of your company does not come through cost reduction alone. Cost optimization is certainly necessary, but it must be rationalized. When considering business revenue, for example, you can go and check the number of your customers, how much they really spend and when they buy one of your products or services. On the basis of such concrete parameters, you can then modulate the cost of the product or service you offer and broaden the analysis to the growth opportunities that a specific market proposes to improve and to optimize costs according to higher and higher revenues.

Mistake 5. Do not rely on interactive dashboards

Manual recording of cash flow, on ordinary spreadsheets, has an extremely large margin for error. Forgetfulness, carelessness are not allowed when monitoring and managing cash flow, as they can be fatal to the proper understanding of your business liquidity and the subsequent development of a concrete growth strategy. Relying on interactive dashboards such as Dashero solves this problem and, among other things, simplifies the work of the accountant who will perform the company’s accounting on certain and always up-to-date data.

Why monitoring cash flow can make a difference for your business

Monitoring your company’s cash flow is not mandatory, but it is definitely useful for the economic health of your business. It is also, and this should not be underestimated, a factor in attracting potential investors interested in growing your business.
As we have seen, cash flow allows you to optimize the management of your company’s liquidity and, above all, it allows you to better deal with any kind of unforeseen event, detecting the actual economic availability of your company. Proper cash flow management ensures that you can operate with peace of mind.
Precisely for this reason, Dashero makes monitoring your cash flows intuitive: so that you can be in control without falling into trivial and unfortunately very common mistakes; so that you, by managing cash flow in the best possible way, can prevent unforeseen events, see your company grow in accordance with your goals and your roadmap.


CEO at Dashero - I am a serial digital entrepreneur. I've been creating digital businesses out of passion since 2001. I've founded dozens of startups, helped create hundreds of successful brands.

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