Being a business owner is a tough job. You have to have your finger in many pies and make sure that they are all working as you would like.
Managing your finances is one of the most important, yet challenging, parts of your role. Good financial management directly links to your company’s success. Failure to adequately manage company money can lead to reduced profits, bankruptcy and the failure of the company.
Here are some of the common pitfalls businesses can fall into and how to avoid them.
Poor cash flow management
A healthy cash flow is a good indicator of the success of your business. Money moving into and out of your company can showcase your spending habits as well as your income from sales or services.
One of the most common cash flow-related issues is underestimating expenses. Being hit with a bigger repair bill or materials bill can deplete your savings, leading to issues with future spending.
Using accounting software will make it easier to keep track of all your cash flow, giving you the chance to make informed decisions about the future of the company.
Overestimating revenue
It is normal to be optimistic about your company’s future revenue, but it is also important to be realistic. Expecting more money to come in than actually does can lead to overspending, overpromising and therefore financial difficulty.
Banking on a certain level of revenue can leave you unable to pay bills or even wages, which would lead to the downfall of the business. To combat this, educate yourself in realistic forecasting techniques and stick to conservative estimates rather than inflated ones
Inadequate budgeting
Budgeting is a skill that many UK adults struggle with on a personal level, let alone when you are running a business. But a carefully considered budget can be the difference between success and failure.
When budgeting, take time to cast a critical eye over all of your accounts, income and expenditures. Already at this stage, you may be able to identify some overspending. For example, if you need niche services such as healthcare payroll services then it may be beneficial to outsource to healthcare accountants.
The most important part of budgeting is making time to revisit and adjust your figures when things change. This may be due to economic pressures, a larger order than expected or even staff moving on to other opportunities. Being aware of the impact of these changes allows you to respond quickly and make adjustments elsewhere in the business.
By being proactive when it comes to financial management you can avoid making a lot of these mistakes. However, financial management is not a skill that comes easily to all so seeking professional guidance is always worth the cost.
