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Cash Flow Mistakes Made by New Business Owners

A cash flow loan is debt financing in which a bank lends funds for working capital. When we say working capital, weโ€™re referring to the capital of a business which is used in day-to-day operations. This loan uses expected cash flow from the borrowing company as collateral. Many small, new companies take out these loans to give their new company funding. Itโ€™s a great idea, as businesses need to spend money to make money. That being said, there are common mistakes that new companies make regarding their working capital. This article gives a couple of examples, and how to fix them. (Related topics: cash flow loan Connecticut attorney, cash flow loan CT lawyer)


Underestimating Startup Costs

Underestimating startup costs is one the of the first mistakes a new business can make. As a business owner, you need to set a realistic budget, as well as room for overage. You can do this by counting every single expense, from office chairs to napkins. Every expense makes a difference, and planning ahead is important to the success of your company.


Not Creating a Cash Flow Budget

This budget is an estimate of the cash youโ€™re expecting to earn and the money youโ€™re expecting to spend. This is important, because if you donโ€™t follow this budget, you can easily go into debt. Donโ€™t forget that part of your earnings from your company will go towards paying back your loan, so take that into account when you make a financial plan.


Expecting a Profit Too Soon

As good as it sounds, you canโ€™t expect your company to be successful the moment you open its doors. It takes a while to build credibility, get regular clients, and grow your company. When you apply for a cash flow loan, remember that you wonโ€™t have that much income at the beginning. Studies have even shown that 1/3 of businesses donโ€™t reach profitability during the first year, so make sure to be financially able to support yourself.


In addition to these 3 examples, there are other common mistakes new businesses make, including: overlooking high overhead costs, collecting receivables too slowly, low profit margins, and more. Itโ€™s important to watch out for these financial mistakes, as youโ€™ll need to pay back your cash flow loan. For more information on cash flow loans, make sure to hire a cash flow loan Connecticut lawyer.

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