5 Ways financial mismanagement will kill your business
For a sustainably successful and profitable business, understanding your business finances is key. It doesn’t mean that you can’t outsource your bookkeeping or get advice from your accountant, but it does mean that you need to understand your financial reports so that you can make confident day-to-day business decisions that are well considered and lead to profitability.
Work with a budget
A lean operating budget will help you get through the tough times. A budget also helps you set goals to work towards and achieve that, in good financial management terms, means a healthy bottom line and healthy profit margins. Good money management is based on your business’s financial plan that’s developed to help you achieve your money goals.
Your budget helps you stick to your plan and monitor your progress against your goals. It’s also vital to outline where you’re excelling and highlight the areas that need improvement.
Keep it lean
When it comes to expenses and overheads be cheap or, in other words, be conservative with your spending. Having a minimum viable budget and a ‘lean and mean’ mindset will stand you in good stead.
Good cash management is the essential part of money management and the reason why your business will survive. You need clients to pay their invoices and ensure you have cash balances to cover payroll and other financial obligations. It’s because cash levels constantly fluctuate that good money management is key to your business’s survival.
Even with the best ideas and customer service, your business won’t survive without making good money management your priority. t
Protect your credit
It’s rare to see a business fail overnight. It’s generally a gradual process with the first signs of trouble being delayed payment of bills, changing payment terms from 30 to 90 days, and strategising about which of your suppliers you can delay paying for the longest.
It’s usually the case that you can only get a loan when it looks like you don’t need one. If your business is in financial distress, your loan options either dwindle dramatically or the terms of a loan are onerous.
Get a great accountant
Because cash flow problems usually develop over time, having a great accountant who’s proactive, skilled, and knowledgeable will give you a good defence against cash flow and other financial challenges.
And ‘proactive’ is the operative word here. Most accountants operate reactively, providing business owners with reports about what’s happened. However, a proactive account that’s able to help you identify opportunities, plan for success, avoid missteps, and build a business that’s focused on wealth creation is worth his/her weight in gold.
Have an accounting system in place
Your financial management system forms the foundation from which all your financial decisions will be based. Because your accounts focus on reporting and financial management, how to generate cash, create wealth, use assets, and get a good return on investments, you need a robust accounting software system you can trust.
Cloud accounting systems like Xero handle handle financial transactions, keep track receivables and expenses, and offer robust reporting that ensures you can review income, expenses, assets, tax requirements, and all your financial reports at the click of a mouse. It also helps you improve your short- and long-term business performance.