At the heart of every successful business is skilled and efficient financial management. It seeps into every other facet of your company, from tracking business performance to effective administration, growth, and expansion and determining its longevity. Because running a business is highly rewarding and overwhelming at the same time, here’s a list of common financial mistakes to help you achieve your goals faster. The goal is to minimize risk by avoiding common financial mistakes.
Inconsistent Cash Flow
A positive cash flow must be maintained for a prosperous and healthy business. Cash flow is the money coming in and out of your business. For this flow of money to be considered positive, there has to be more money coming into your business than going out of it. A negative cash flow is when more money goes out of the company than in. It’s through the state of its cash flow that a business makes its day-to-day decisions. Here are some ways companies end up having negative cash flow.
Expanding too quickly: While growing a business is an exciting and passion-filled process, you must be cautious. Expanding the business creates a ripple effect where you have to hire new employees, get new equipment, and deal with many other considerations. Move at the pace of your business. Not too slowly or too quickly.
Purchasing too much stock: Every time you acquire stock for your business, money leaves, and the expectation is that it’ll return. But too much stock means the funds will take longer to circulate into business. Keep an eye on your commodities’ profit and loss value so you can acquire them tactfully and not just because they’re available. Freeing up the money that would’ve otherwise been used to buy stock allows you to have more investment options or cash on hand.
Poor planning and decision-making: Cash flow informs the company’s decision-making process. When cash flow statements are not updated regularly, they severely affect how effectively a company charts its way forward. These statements should include how money is circulated within and outside the business. When they’re up-to-date, you can make decisions from an empowered and knowledgeable place. This ultimately plays a part in the company’s proper management and ultimate growth.
Poor Tax Compliance
Ensuring your company’s tax compliance isn’t under or over the set tax obligations is essential. Create a list of tax requirements the company needs to follow and implement a system that allows you to keep up with compliance. This is one of the most common financial mistakes that land businesses in trouble. The most effective way to maintain tax compliance is by setting up an in-built compliance system that allows you to run efficiently rather than by chance. Watch out for any tax relief relevant to your company to reduce your tax bill. The tax burden cannot be underestimated; if you can have some of that taken away, seize the opportunity!
Blending Business and Personal Finances
This is among business owners’ most common financial mistakes. To solve this problem, open a separate business account and use it to track and manage all company transactions, those coming in and going out. This separation allows you to keenly manage your company’s cash flow, ensuring the availability of liquid funds and working capital so you can pay your employees on time. You could also delegate this function by adding a financial advisor to your team, whether as a consultant or a full-time employee. They’ll work with you to create a sustainable plan so you can achieve your company’s goals. Here are the benefits of working with a financial advisor:
1. They advise your investment process by helping you create the most profitable combination of assets. They also work with you to assess and improve your attitude toward taking risks and investing. Being and staying in business is about knowing what direction to take and when. Financial advisors help you achieve maximum growth by ensuring you aren’t placing all your eggs in one basket. They make suggestions on high-risk investments while at the same time transferring their financial expertise to you.
2. They keep your financial goals: Whatever your goals, a financial advisor can offer you a grounded and realistic plan for achieving them. The subject of money and finances can be very daunting, and having someone make it less complicated is an amazing thing. You can request your financial advisor to keep a watchful eye on your investments. Although they assist you in building a working system for running your investments, they also need to be regularly monitored.
3. It fosters peace of mind. When protecting your hard-earned money, you must have someone you can trust. A financial advisor plays a huge role by staying objective and grounded. Because they’ve been in the market and understand how products or services work, their knowledge of trends allows them to identify potential pitfalls and benefits. They take the guesswork out of financial management and investing and ensure you don’t follow the hype.
Maintaining a separate business bank account is healthy if you declare bankruptcy. It’ll have a clear picture of your finances without misleading expenditures. Under the bankruptcy law, individuals or companies can initiate a legal process to declare bankruptcy when they can’t pay outstanding debts. The law forgives your debt and provides a solution through which the creditors can be paid part of their money. This kind of foresight ensures business success.
Budgeting is all about allocating resources. It’s about determining what resources should go where, when, in what amount, and for how long. Having a poor budgeting system or not budgeting at all and hoping for the best sets your company up for failure. To avoid common financial mistakes such as this one, get a budgeting method that works for your company. This is an ever-evolving process since your company’s needs will vary occasionally. Set your financial priorities right since they act as your north star, keeping you on your toes. Additionally, track your spending to align with the company’s needs. Once established, list them as minimum, maximum, and recurring expenses. Finally, leave enough wiggle room in the budget to manage emergencies and fluctuations comfortably.
The satisfaction level of employees is critical and can make or break your company. A fair, proactive, empathetic firm with a revolutionary leader can influence the employees positively, leading to higher profit margins and company growth. Since the employees interact intimately with the company’s objectives and day-to-day operations, they’re in a unique position to offer invaluable input. An efficient leader motivates employees to be productive for the company’s benefit. Healthy interaction with employees ensures low staff turnover.
Another way to ensure employee satisfaction is by guaranteeing safety. This can be achieved through an in-house or consulting workers compensation lawyer. The lawyers ensure the employee’s interests and rights are safeguarded. They also protect the company from future legal action by making sure employees are treated fairly.
Lack of Foresight
One of the overlooked but common financial mistakes is failure to prepare for what might or mightn’t happen in your business. Preparation allows one to protect their finances by minimizing risk exposure. You can do this by installing security systems and developing a strategy to protect your company from data breaches and other cybersecurity threats. The physical safety of your business and employees is also ensured. Hiring a business lawyer is another way to keep your company informed and agile. Use them to offer in-house consultation by way of drafting business contracts, helping your company avoid litigation, protecting and preserving the company’s right to intellectual property, and reviewing the fine print in real-estate leases and agreements, among other benefits.
In the unfortunate event of your demise, it’s important to ensure your finances and company are in the most capable hands, so your hard work isn’t run into the ground. Hiring a trusts attorney is the best way to avoid these common financial mistakes. These estate lawyers handle property management, draft wills, powers of attorney, and trusts. They generally protect your legacy.
Not Automating Business Functions
You’re the custodian and manager of your company’s vision. Among the common financial mistakes people make is taking on too much or doing too much manually. Granted, this isn’t a small duty. One of the ways you can assist yourself and the company is by automating certain business functions so you can have more time to develop and achieve your full financial potential. You can achieve this by acquiring a payroll service provider to process and calculate salaries and generate payroll reports. The automation process takes a very tedious process and makes it an efficient, automated part of your business.
Too Much Debt
You’ve got to spend money to make money, right? This statement may be cliché but very true. Businesses often borrow from institutions or friends to expand or scale up their operations. Borrowing more than they can pay is one of the common financial mistakes they make, as the risk of sliding further into debt is very real.
To avoid too much debt, identify where to cut costs. An effective debt management strategy allows you to identify what you need to run the business and what you can do without. You can also consider being creative with financing options, such as seeking angel investors. Consider consolidating your business loans into one if you’re in too much debt. Debt consolidation allows you to work with creditors, making it less stressful for you and your company.
Poor Marketing Strategy
A common financial mistake is poor or inefficient marketing tactics. Suppose one of the financial goals of the company is growth and profitability. The company must continually seek new clients or customers, take their feedback seriously, and improve upon it. Attracting new markets means adopting marketing strategies that attract and maintain potential clients.
How you package something plays an invaluable role in how it’s received and perceived by those it engages with. When done right, this is one area that can magically drive up sales within a company. You can choose an internal marketing team, hire a marketing firm, or use various online resources to create a successful marketing campaign.
Not Insuring or Underinsuring
Without insurance, all it could take is one incident to incapacitate your business. Be sure your company’s assets are fully insured, just in case. For instance, you need an auto insurance service for your vehicles. Insurance is a contract between you and the insurance company to protect you against financial loss, such as during a disaster or vandalism event. Hands down, insurance is the best gift you can give your business, and it can be tempting to avoid it and save a few bucks, but it’s a worthwhile investment that’ll pay off big time on a rainy day.
Successful, growing businesses don’t take a rigid or relaxed approach to financial management. They follow a pragmatic strategy by making the right financial decisions. Whether this is done by taking financial classes, hiring a financial advisor, or having a team of experts, this is one of the common financial mistakes you should avoid.
A company’s financial needs are always shifting, with demands to upscale forcing them to seek loans and streamline processes. While running your company, first empower yourself by learning as much as possible and leaning into support networks that help your company grow. And as your company grows, you evolve with it, gathering critical intel at every growth stage. This is critical, so you can steer it through the necessary evolutionary stages and times of turbulence. As your business grows, it will place demands on your time and attention, which you must learn to balance.
The goal is to keep the big picture in full view while at the same time not neglecting the small moving parts; after all, they’re the ones that snowball into the big picture. Be frugal in managing your company’s finances, as slackening in this area could roll back progress made. Wake up every day determined to keep your business running and tweak whatever needs to be tweaked, adopting what works and abandoning strategies that no longer work.