Many new business owners consider that the financial management of their enterprise is an over complicated task that is best left in the hands of their accountant. However, nothing could be further from the truth, because the task of the accountant resides exclusively in recording the cash flow from and to your enterprise, not interpreting it. He is not qualified to keep track of your company’s profit loss ratio and take business decisions according to it. You are!
While I’m not saying that financial management is a walk in the park, you can definitely make things easier if you steer clear of the mistakes that I’m going to present in the following article.
Failing to establish business strategies that are easy to follow
You should start your enterprise by organizing a list of tasks that are mandatory for its well being and profitability, such as:
- Constant verifications of the company’s revenues
- Checking out the value of the expenses on a regular basis
- Examining the cash flow
- Requesting a forecast of the company’s budget in the long and short term
Photo credits: stefan.erschwendner
There are of course other tasks, related to your particular business niche that you need to account for. However, the point is that you need to plan these actions on a regular basis and always make time for them, irrespective of how busy your schedule is. Without them, financial chaos are bound to unleash and that’s never good for business.
Combining personal income with the company’s income
Right off the bat, that is probably the worst thing you could possibly do because it’s a surefire way of embezzlement. Disconnect the two accounts – business and personal – is the first action you should engage providing you recognize yourself in this situation. At the same time, it is critical to refrain from paying your company’s expenses from your own pocket or vice versa, purchasing personal use goods/services from your business account. It is also necessary to point out that these erroneous approaches will make it difficult to keep track of profit and loss statements, income statements and cash flow statements.
Avoid paying your taxes as much as possible
Many financial experts state that the taxes themselves are not the actual reason why businesses become crippled. To put it simply, the taxes that you have neglected to acquit will start piling up to the point when you will not be able to get out of debt. Other common errors you can make is to utilize the money that should be dedicated for taxes in order to account for other operating purposes or to forget about setting aside the cash that goes on taxes for each of your employees. In order to avoid these costly mistakes, my suggestion is to open a dedicated tax bank account which will be utilized for no other purpose and that will also help you provide the quarterly estimates requested by the IRS authority.
Improvising instead of planning
Remember how I mentioned the fact that you need to have the financial statements on your desk to analyze at least on a monthly basis? Well, that will not serve any purpose if you have not set an actual goal for your business. In other words, you have the data at your disposal but you have no idea what it signifies. Is it good? Is it bad? In the absence of a pre-established financial goal – for example a certain monthly/yearly net profit – you have no clue regarding whether or not your current business strategy needs tweaking. On the other hand, by creating at least a basic estimate of your expectations will permit you to find out how close you are to the goal and adapt accordingly.
Forgetting to put a part of the revenues aside for a rainy day
The volatility of the financial environment nowadays makes creating a revenue savings fund more necessary than ever. Almost every field of business can experience sudden shifts in supply and demand, so without a lifeline your company may be assuming more risks than it can handle. However, there is an alternative reason why a certain percentage of your revenues should go into a savings account: unexpected opportunities. What I mean here is that there is no way to predict when you could be granted to possibility to make an investment that would allow your business to expand or reinvent itself. Therefore, if you want to be certain that you are not the one left on the shore while that ship sails, be sure to take this advice into consideration.
Not outsourcing some of your workload
As a rule of thumb, in the business world you cannot make money without spending some cash first. Here I’m not referring to the budget for marketing and advertisement, but rather to that associated with distribution and fulfillment services.
If you have been in business for a while now, then it is likely you already have these details sorted out. However, if you do the math, you will soon realize just how much this actually costs. All I’m saying is that fulfillment centers have managed to help some industry veterans reduce company expenses. Isn’t it worth checking out if this is applicable for you as well?
New companies that consider they can’t possible afford such an investment, should think of their competition. Can you say that you can live up to the standards in your niche operating from an adjacent area or a stock room? Think about it, folks!
About the Author: Chad is a writer for fulfilmentcenters.com, a leading fulfillment service in the US.