Financial Planning: How to Avoid 6 Common Mistakes in Business Finances

Whether your business is a startup or an established company, there are many risks that can have serious consequences on your finances. If managing your business’ finances is something you struggle with, don’t worry. You’re not alone. Knowing what to look out for and how to work around common financial mistakes will help you make good, informed business decisions. Consider the following list of ways you can successfully avoid some of the most common financial mistakes business owners make.

Implement a Cash Flow Budget

Many entrepreneurs make the mistake of trusting their gut too much. Isn’t that a big part of being an entrepreneur? Maybe for certain aspects of business, but not when it comes to business finances. Many owners, especially startups, mistakenly assume their business is on the path to success because incoming numbers look strong. With the belief that everything is under control, the business owner becomes too relaxed in managing cash-flow.

Cash-flow management involves frequent and continuous analysis of the movement of funds in and out of your business. For your business to grow and thrive, it requires positive cash-flow. If the cash leaving your business (accounts payable, salaries, monthly expenses, etc.) exceeds the cash coming into the business (sales, accounts receivable, etc.), your business is experiencing negative cash-flow. The most effective way to avoid overspending – and thus, overall cash flow disaster – is to implement a cash-flow budget.

Maintain Sufficient Inventory

While inventory doesn’t necessarily apply to every business type, increasing inventory too quickly is a common mistake business owner’s make. Many an entrepreneur has allowed their enthusiasm to blind them to the reality of business, causing them to spend too much on inventory – to the point they are unable to pay off debt. Poor inventory management can lead to slower order fulfillment, which then extends your cash-flow cycle. It can also lead to higher interest rates from vendors and an inability to cover operational costs, since too much money is tied up in inventory.

Business finances is not the only area of a company that is affected; customer service can also suffer when customers have to wait for a product or seek service elsewhere. Although it can be a tedious task, it’s critical that you efficiently manage inventory to avoid real business consequences. Start by making predictions of how much supply you’ll really need and when. Make sure you look at inventory month by month so you can identify any trends or seasonality.

Plan and Track Campaign Metrics

It’s easy to become wrapped up in the numbers and everyday tasks required to run a prosperous business, meanwhile overlooking the importance of marketing programs. It’s important to realize how much marketing has changed in recent years. TV channels, radio stations, magazines, and newspapers are no longer the primary methods of crafting a compelling message to reach consumers.

According to Forbes, “What used to be a matter of identifying needs and communicating benefits now requires us to build immersive experiences that engage consumers. That means we have to seamlessly integrate a whole new range of skills and capabilities.” 

Whether you are a business startup or an established business, you need to devote time and money on marketing and branding campaigns. This involves clarifying your business’ objectives, identifying emerging opportunities and developing a strategy for a given time interval. Embrace the seemingly endless advances technology has to offer and be sure to plan and track your business’ campaign metrics.

Faithfully Analyze Business Finances

Part of being a successful business owner is being honest about what tasks you should complete, and when you should hire help for tasks not in your highest skill set. One big mistake many entrepreneurs make is depending too heavily on others to track their business’ finances. As important as it is to trust your head of finance, it’s equally important to carefully go over financial reports yourself so you have a thorough understanding of the financial state of your business.

You should regularly analyze your business’ income statement, balance sheet, and cash flow statement. These statements reveal your business’ financial health at a specific point in time, they provide insight into anticipated income and expenditures for the upcoming period and they allow you to evaluate overall profitability and performance. All in all, staying informed will help you seize opportunities, make wise business decisions and discover any potential problems.

Automate Repetitive Tasks

As a small business owner, your time is incredibly valuable. One of the ways you can protect that time is by automating certain business tasks. Many business owners fall into the habit of completing tasks manually and solely by pen and paper. For some businesses, doing things the old-fashioned way is a time-honored method of running their business. However, the advantage of adopting various automated tools is that you will have more time to focus on urgent business matters.

Many daily business activities involve a lot of repetitive work. Using a software program that stores basic information for repetitive input tasks (e.g. physical addresses, contact information, communication history, etc.) allows you to breeze your way through managing sales tasks, events, and projects. In addition, automating marketing tasks can speed up the process of informing customers about deals, special offers, new products, and business news. Consider the many advantages of automating emails using an email marketing tool. Customer support and accounting are just a couple of the other repetitive business tasks you can automate to simplify processes and save time.

Set Clear, Measurable Financial Goals

Another common mistake business owners make is only planning for the here and now. They fail to set aside money for expenses (e.g. taxes, overhead expenses, expansion costs, cash cushion, etc.), and/or they rely on anticipated future revenue. At times, it may be necessary for the business to look for outside help in business funding. One of the many advantages of setting clear, measurable financial goals is that it provides insight into when you might need to seek business financing solutions elsewhere (e.g. invoice factoring or PO funding).

As you set financial goals for the future, consider what your business could accomplish if it had extra funds. You could hire more staff to help grow business sales or invest in new equipment. Setting clear goals allows you to identify what your business needs, and what business funding solution best suits your business’ situation. In planning for the future now, you can avoid the situation of securing the wrong business financing option simply because you were pressed for time; a rushed decision like this can quickly push your business into a downward spiral of debt.

Security Business Capital’s Business Funding Solutions

The team of experts at Security Business Capital specialize in helping companies secure the funds they need to operate smoothly, grow their business and take advantage of opportunities. Our invoice factoring services, for example, allows you to use unpaid invoices to secure the cash you need quickly and easily. Invoice factoring is successfully used by many different industries, including manufacturing/distribution, business services, transportation, oilfield services, among many others.

For a free consultation on cash flow options like spot factoring and invoice factoring, contact Security Business Capital today!