Top 5 Mistakes to Avoid in Business Finance

Top 5 Mistakes to Avoid in Business Finance

Top 5 Mistakes to Avoid in Business Finance

The finances of your business can be both the most important thing to be on top of, and
is also, one of the most difficult to keep track of if done incorrectly. The basic principles
are the same whether we are talking about a small enterprise with a single self-
employed individual or a huge multi-national company. The big difference will be the
procedures and methods used. It’s important not to fall into the temptation to push
taking care of these matters in place of sales and other tasks. Ignoring the finances can
be fatal to the success or failure of the business. Here are the top five mistakes to avoid
when navigating the world of business finance.

Not Adequately Planning

Planning is the key to success in any walk of life, and this is especially true of business.
A good business plan is both detailed and takes care of any eventuality, and is concise
enough to be easily readable. One tip is to be sure to plan for any eventuality. It is
tempting to assume everything will go to plan and not allow any room for problems. For
this reason, it is prudent to do financial analysis for the eventuality where things go well
but also what would happen when they are not. If you know what the reasonable worst-
case scenario is, you can have an exit strategy for it. In a business plan, I always put in
three cash flow projections, the expected one, a low one, and a high one. Following this
strategy allows us to assess which path we are following.

Improper Cashflow Management

Often when a business gets into trouble, there is nothing fundamentally wrong with the
sales strategy or business plan, rather the cash-flow is not there. A cashflow deficit can
happen if you are not on top of your invoice, and then customers get in the habit of
paying late. It then becomes more difficult to start collecting on time. Another way you
can find yourself in trouble is forgetting that you owe an invoice, and then the reminder
turns up and you’ve not set the money aside to pay for it, this leads to the situation
where you are taking the profit out of current operations to pay for these costs.

Getting Paid on Time

Given that we want our money on time so that we can keep our business operational,
there are certain things we can do to ensure this happens. Firstly, we need to be sure
we get every invoice on time and set a payment term on that invoice, whether it’s seven
days or twenty-eight. Be aware of when these deadlines expire and chase up payment
as soon as this happens. Offer a variety of payment methods, if customers can even
buy Bitcoins instantly with debit card easily, so be aware of new and modern payment
options. If you have done all of the above and are finding you still have a significant
level of unpaid invoices then it is time to take action. The first thing to do is to get in
contact with your customer, preferably in writing, email or other digital form is fine. This
allows you a trail to follow with evidence of any promises of payment. The reason this is
vital is that if you have a promise of payment with no mention of any reason payment is
being withheld then it is more difficult for them to later argue there is an issue.

Chasing Losses

It’s not uncommon for businesses to make a loss for a short period. Some may be
seasonal, and this happens on an annual basis. Other times it’s a factor outside of our
control that may be property damage such as a flood or fire that requires our premises
to close for a short while. In this circumstance, it’s important to claim on insurance
promptly and assess your losses so you can cut costs and plan accordingly. If you find
your business unexpectedly losing money then it’s important to quickly assess what is
going on? If you have been taking care of the book-keeping this should be much easier.
As with any financial assessment the first place to look is the balance sheet, this will tell
you fundamentally if your business is viable, if you are in a deficit then immediate action
must be taken. Beyond this, you can look into where your orders have been coming
from, if you have more than one type of customer is it only in a particular section of the
business where the losses are coming? If so then check if something has happened, a
website down, bad reviews on social media, or something more out of your control? If
you know the problem you can look at fixing the problem or even altering your larger
business strategy.

Taking Out the Wrong Type of Finance

It is not uncommon to take out finance in business. It could be for cashflow purposes
such as an overdraft or business credit card or maybe to finance expansion or
equipment. Whatever the reason you need to assess if the repayments are affordable.
Also, be wary of making any personal guarantees as, if the business fails you would be
fully liable personally. Being liable is not a situation you want to be stuck in. But in
general, you should be looking to get the best deal with any business finance. It should
be your priority to assess what the best lending you can be offered is, using the classic
comparison sites is a good start. However, once you have selected a provider that
seems right it is important to check how good a deal they are offering. Are there any
hidden fees? Do they impose penalties for early or extra repayments? Can you take a
payment holiday? These are all important things to consider.

This article has been contributed on behalf of Paxful. However, the information provided
herein is not and is not intended to be, investment, financial, or other advice.

 

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