Without a doubt, financial mismanagement is one of the leading causes of business failure. We hope you’ll be extra cautious to safeguard your business from collapse by pinpointing the main financial pitfalls for businesses.
Several automated tools make it easier to manage your finances. Working with budgeting tools and cash flow management systems are excellent ways of managing your finances. If you’re looking to borrow, check out this business loan calculator to determine the cost of borrowing funds upfront.
Why You Need Your Business Finances Under Control And In Order
Here’s why proper financial management should matter to you:
- It will keep your business afloat. A well-managed business can pay its bills and employees and replenish its inventory without running out of cash.
- Enables you to anticipate funding gaps in the course of running the business. You can then apply stop-gap measures when payments are delayed by accessing working capital loans.
- To be able to save for a rainy day
- To prepare for business expansion
- When filing taxes, you’re prepared for the tax reporting season when your financial records are up to date.
- Helps to calculate key financial performance indicators for your business: You can determine your profits, margins, ROI and make comparisons with other businesses in the industry to check for efficiency.
Main Mistakes That Are Ruining Your Business Finances
1. Failure to prioritize a financial plan for your business
Stay on top of your business finances by prioritizing a financial plan for your business. If you fail to have a business plan, budgets, proper bookkeeping, financial projections, tax planning, and a plan to mitigate business risks, you’re operating your business in blindfolds.
Work out a concrete financial plan so that you have a pulse of your finances.
2. Failure to raise adequate capital
Many entrepreneurs underestimate what it takes to run a business until it can break even. When you’ve come up with a groundbreaking idea as an entrepreneur, learn to manage your optimism. Plan for cash to pay utilities, leases, employees, and cater for your expenses for a few months before the business picks.
3. Poor cash flow management
In business, cash is king, and a failure to manage it may sound like a death knell to your enterprise. Take a keen interest in your inflows and outflows. Analyze your fixed and variable costs consistently viz a viz the revenues you generate from your operations.
Where funding gaps result from cash flow shortfalls, consider getting cash flows from lenders to fund expansion, equipment acquisition, or major repairs. Use a business loan calculator to ascertain your borrowing costs.
4. Failing to live within your means
Like individuals, businesses may also operate extravagantly to their detriment. Write a budget for your business, and do your best to stick to it. Avoid unnecessary purchases early on in the industry when the inflows are still fragile.
5. Incorrect pricing
Sometimes, new businesses offer their products at a lower price to attract customers from the competition. However, it may be unsustainable to maintain the price too low for too long as your revenues may not be able to match your overheads.
6. Neglecting the need for financial experts
Entrepreneurs often suffer the syndrome of trying to be everything in the business. Find a finance expert to help you out with your finances to focus on your area of strength and make your business flourish.
Sound financial advice might be what your business needs to prepare well for taxes, make the right borrowing decisions, manage cash flow, avoid commingling of funds, or automate finance processes. You can employ an in-house expert, or hire a freelancer to help your review your finances.
Some Tools That Will Help You With Your Finances
- Accounting software
- Business loan calculator
- Budgeting tools and software
- Expense tracking
- Payroll management system
- Inventory management systems
- Cash flow analysis
- Billing software
Avoid the common mistakes that most businesses make in finances, and you stand a high chance of survival. Employ some of the best-automated tools like accounting software and business loan calculators to help you make better business financial decisions.