Some financial mistakes can cost your business irreparable losses. Once you lose track of your financial performance, you may not recover easily.
Here is our expert advice for you on financial mistakes you should avoid for your business.
Poor Financial Planning
Most business owners focus too much on business planning, product design, and marketing. They tend to fail in financial planning.
Poor financial planning leads to the poor execution of business plans. Without a solid financial plan, you wouldn’t be able to run your business.
Financial planning includes budgeting, cash flow management, forecasting, costing, and pricing aspects to name a few.
The first step you can do is to devote time to planning for your business’s financials. Talk to an expert and create a long-term plan.
No Access to Data Insights
A big mistake that most businesses make is not to utilize powerful data insights. Small businesses cannot often analyze financial and non-financial data.
A major reason for this failure is no access to recorded data. When you do not use powerful accounting software, you don’t get the necessary data.
Using a professional accounting service can solve this issue for you easily. You’ll be able to leverage the power of financial data.
Your financial planning like budgeting and scenario planning will improve drastically.
Poor Cash Flow Management
Cash is king for every business, in particular, for small businesses. Even a profitable business will not survive without cash flow management.
Without proper bookkeeping, you can’t create a log of your income and expenses. It means you wouldn’t have access to when and where cash is needed.
Similarly, your invoicing system will not function properly without automation. You’ll build up piles of unpaid invoices and drain out the cash flow.
Inadequate Cash Flows
Some businesses ignore the importance of managing cash flows. Even when they can easily utilize their cash flows, they turn to extensive borrowings.
The working capital cycle plays the most crucial role when keeping a safe level of cash flow for your business.
If you keep a long accounts receivable period and a shorter accounts payable, your cash flow will remain out of balance every time.
That results in businesses turning to debt financing and paying more on interest expenses than they actually should.
Automation of invoicing and expense control can help you mitigate the risk of inadequate cash flows.
Too Much Emphasis on Sales
We have seen businesses focusing too much on generating more sales than anything else. Product sales or revenue is the top line of any business.
However, you must consider the costs associated with an overemphasis on sales. Some businesses may lower product prices to generate more sales.
That may lead you to compromised product quality and cost cuts in various other business sections.
In the long run, this financial mistake will lead to a decline in business profits.
Poor Pricing and Cost Issues
A similar issue to the one discussed above is poor product pricing and costing. When you do not create automated expense logs, you cannot evaluate product costs accurately.
To keep your product pricing competitive and make reasonable profits, you must know the input costs of your products.
Then, you should analyze the overheads and other expenses like taxes as well.
Thus, product pricing is not a discrete financial decision. Avoid this mistake of adjusting product prices frequently and without planning.
Poor Expense Control
Poor expense control happens when businesses do not have access to data. It’s the result of manual bookkeeping practices.
Businesses without automation do not visualize data like income and expenses. They cannot determine where they can cut expenses when required.
Failing to address the expense control issue leads to shortcuts and a poor expense slash that directly results in poor business performance overall.
Not Planning for Overheads and COGS
Overheads, cost of goods sold, and cash flows are directly linked. Many businesses compromise on overheads and COGS planning.
If you don’t control overheads, you cannot keep your product pricing competitive. It does not mean reducing overheads unnecessarily though.
Similarly, if your direct product costs are known and the cost of goods sold is out of control, your product will never be profitable.
Thus, you’ll compromise on cash flows and profits by ignoring these two important financial aspects.
Setting benchmarks like 25% of sales should go to overheads and 40% of the sale price should go to the COGS can help you make better decisions.
No Emergency Fund
We have all seen tough economic conditions in the last few years due to the Covid-19 pandemic challenges.
When it began, it was an emergency health crisis. Soon it affected businesses all over the world. Only those businesses survived that planned for emergencies proactively.
Then, businesses must be flexible in their plans and must adapt according to the market challenges.
As a starting point, create an emergency plan and spare sufficient cash to support your business operations if and when required again.
We all know economic downturns are recurring for one reason or another.
Not Utilizing Professional Accounting Services
If we can summarize the financial mistakes made by businesses into one larger chapter, it would not use professional accounting services.
When you turn to automation and join a professional accounting service provider, you set the foundation right.
With a solid accounting foundation, you can build on it for your long-term financial success.
Remember, a professional financial service provider will not offer an accounting tool, you’ll get the full financial service package.
How Pelrio Can Help You Avoid These Financial Mistakes?
Continuing with our last point above, Pelrio offers one accounting software that is simple to use but comprehensive in nature.
You can expect a wide range of financial services and expert voices from our side to avoid the financial mistakes that we just discussed above.
Automate Record Keeping
First of all, we recommend automating your bookkeeping records. Use our accounting software to keep a digital record of your books.
When you’ll have every income and expense transaction recorded, you’ll then be able to categorize and analyze them accordingly.
A big advantage of moving to automation is expense control. Many businesses struggle in this aspect and make financial mistakes without evaluating the situation.
Once you start recording business transactions, you can manage expenses, invoices, and accounts receivable efficiently.
Cash Flow Management
Automation leads you to better scenario planning, invoice management, expense control, and dynamic forecasting for your business.
All these factors combined mean excellent control of the cash flows of your business.
Better Financial Decisions
When you want to make a financial decision, you must make an informed once. For example, you want to increase your product price by 5% to generate more sales.
But how will it impact your market competition? What will impact your net income?
You can make better financial decisions when you have access to data and move to automation with a reliable accounting partner.
Pelrio is a simple expense & cashflow management tool that utilizes artificial intelligence to provide real-time analytics, dynamic forecasting, and expense control for small business owners
Questions, comments, or feedback? We’d love to hear from you. Get in touch by sending an email to firstname.lastname@example.org
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