Many factors contribute to the fall of a business, including bad customer service or poor marketing tactics. The only way a business owner can ensure a healthy profit margin every year is to control their cash flow. But many businesses make financial management mistakes due to poor planning. Most of them underestimate the cost of starting and running a business.
Therefore, it is imperative to learn the financial management mistakes you must avoid to keep your firm running, and here are some of them.
1. Unnecessary expenditures in the business
Every business tries hard to be different from its rival. But in the process, you can end up acquiring lots of unnecessary machinery and office equipment. However, filling up your office space with unwanted stuff only makes things worse and wastes valuable resources. So, before you purchase anything for your business, ensure it is useful for your daily operations. Alternatively, you can go for second-hand equipment to cut costs.
2. Failure to keep organised receipts
There should be a straightforward method of collecting payments and creating invoices in your business to avoid shortages and missing payments. But, failure to know the amount of money coming in and going out promotes the mismanagement of funds. So, have prompt reminders to let you know which payments are made weekly and monthly. Also, consider investing in good accounting software.
3. Not having a budget
Your company's survival largely depends on your planning. A budget helps you know how much money is used every month, whether it is enough and if you should adjust it. Failing to budget makes it hard to account for your tax obligations, office expenditures, and other things in the company. Again, you won't know when you are spending too much, which might lead to piles of unmanageable debts.
4. Failure to have an emergency fund
Emergencies happen when you least expect them. Therefore, it is vital to keep some money for a rainy day. If your business lacks an emergency fund, it might get into a financial burden when an unforeseen event occurs. Financial management experts recommend that you prepare for emergencies by setting aside money to use for about six months when your cash flow is disrupted.
Financial management issues can lead to business failure, and that's why you need to avoid the above mistakes by all means possible. Also, monitor your cash flow with suitable accounting software. With the right financial management skills, your company will continue soaring to great heights.
Share26 May 2021
Hi, everyone. Nancy here. I am currently studying for my degree in mathematics. As part of the “maths in the workplace” component of my degree, I am doing an internship with an auditing firm. Of course, getting to apply maths in a practical setting has been an absolute joy, but there have been a number of frustrations too. It has been a real eye-opener to see how many businesses have a haphazard approach to accounting and book-keeping. One of the jobs the auditing firm undertakes is to recommend improved accounting practices. A number of businesses which have hired professional accountants since the last audit have definitely thrived! I hope this blog captures the beauty of applying mathematical principles to business and using tried and true accounting methods. I trust my entries add up properly to give you an equal share of information and inspiration. Thank you.