Avoid tumultuous financial mistakes! Learn how businesses can navigate common pitfalls and optimize their financial strategies for success.
The B-Word: Budget, elicits dread in so many businesses because, most of the time, there is very little of it. With so many different aspects of marketing and in-house practices that demand a significant investment, companies need to understand where they go wrong in terms of their finances and accounting practices. Let’s show you some of the big ones, but also a few components that you may very well be overlooking.
Not Working Smart
So many organizations think that if they are operating with great intent and intensity, this will benefit them better. The big problem so many organizations have, not just in terms of finances but in terms of work, is that they’re always communicating the importance of working hard. This filters down through the organization and invariably means that people are not doing their best for the business because they are always trying to look like they’re working hard.
If we encouraged autonomy among our employees, we would be far more productive because we can adopt this working smart rather than working hard approach. In terms of finances, there can be a number of components that will benefit. An excellent example is using tax automation software, because automation is one of those things that, while many businesses are embracing, they’ve still yet to understand what it can truly do for them. Tax automation is one of those things that can take a lot of pressure out of your day-to-day operations because when you start to realize what you are wasting time on and create an 80/20 approach to work where 80% of the results come from 20% of the effort, you will make leaps and strides in your day-to-day operations.
Lack of Clarity
Small and medium-sized businesses can find themselves going around in circles because of a lack of clarity. When we start to build a business that is focused, the benefits should come quickly. In fact, we need to always take the opportunity to step back and understand our financial plan and our budget. We always need to meet those financial obligations but also avoid overspending and actually ask ourselves the question: are we conducting effective financial management? This is why you should always have a few spreadsheets that show what your financial plans are.
Budgeting is one of those things we don’t necessarily want to take over our lives but it’s again about that 80/20 rule in terms of financial risk. If you can benefit from 80% of your finances, that 20% can be used to invest in partially risky endeavors. The problem is that many organizations seldom get to this point because they are forever chasing their tails. While we are in unprecedented times where businesses are being charged extortionate rates and the costs of everything going up have resulted in many companies having to drastically downsize their services and practices, if you have a clear understanding of your finances at every single moment, you can adapt and thrive with every single curveball.
Any company needs to be more than aware that there will be issues from time to time, and right now, with businesses being squeezed tightly, use this as the greatest lesson in how to manage your finances and have a clear vision of your budget.
Not Monitoring Cash Flow
Cash flow is one of those things that is part of the day-to-day dealings of your business. Cash flow is not just about what comes in and goes out; it’s also about the timing of these payments. Learning how to spread your expenditure more effectively will make for a healthier bank account.
If you don’t manage the timing properly, this can mean financial troubles at certain times of the month, which business leaders can come to dread. If there’s any major lesson we can all benefit from, it’s that we start our businesses with tight control over our money. Lots of organizations start with the whole bootstrapping approach, which means that they start a business without taking out lots of loans, and this is not just an excellent way to keep control over your expenditures, but it can be another lesson in how to thrive during tough times.
When we bootstrap, this can give us a great sense of discipline that we can take with us further down the line. We should never feel that money is infinite, even if we can get business loans, but when we fail to monitor and cash flow properly, this is the financial equivalent of burying our heads in the sand.
Ignoring Taxes
Of course, there are many things that we can ignore, especially as cautious business owners but we have to remember that paying taxes is vital and therefore, we can get a good head start if we understand how to stay compliant.
Neglecting to properly file taxes can result in more financial trouble than it’s worth; however, there are many freelancers and business owners who continue to put their heads in the sand. It’s far better for you to either get yourself an accountant so you don’t need to worry about these things or take the time upfront to understand what is necessary.
A Lack of Emergency Funds and Contingency Planning
Not building up cash reserves for unexpected expenses is a common pitfall in business and in life. What we have to remember is that if we don’t have a plan to handle these financial difficulties, we can be left vulnerable. As businesses slowly struggle against the tides of rising costs, it becomes harder to come up with a contingency plan when there are financial difficulties.
Discipline is an incredibly important thing with regard to our financial behavior, and we need to remember that every little bit we can put aside is going to help. So many of us can think that there is no point in putting a minuscule amount aside but every little is going to help. As we slowly siphon off a very minuscule percentage, this is going to add up over time. Also, the sense of achievement we get from putting some of our funds away can make a big difference in our abilities to deal with business problems more effectively.
Finances are not just about the money itself; it’s about your attitudes and behaviors that it can elicit. When we have a mindset that we must build up cash reserves, no matter how difficult it can be; this means that when the proverbial hits the fan, we’re going to come up smelling of roses. So many businesses go under because they, very simply, lack foresight, especially when it comes to contingencies. Much like businesses need to plan for any type of emergency, whether it’s a natural disaster or a data breach, the same thing bears repeating in terms of your finances.
Mismanaging Inventory
Poor inventory levels can also tie up our capital. Too much or too little can result in lost opportunities. We should always consider the Goldilocks approach to our inventory: making sure that we have just the right amount. Many organizations think it’s common sense to invest more upfront but this stockpiling approach means you’re not able to utilize more funds. If you don’t allocate sufficient resources for other aspects of your business, for example, marketing and promotion, it’s going to limit your abilities to generate leads and sales.
We can lose a lot of opportunities because we don’t have the right amount of money. We can certainly take the viewpoint that we are saving up for a rainy day when we have more inventory. However, if you don’t have the ability to bring in customers because you bootstrapped your promotional tactics, this is incredibly short-sighted. It’s always important to understand how to manage your inventory levels effectively and there’s a lot of inventory management software that can be a wise investment.
Hiring Unqualified Staff
There are two schools of thought here: some organizations bring in so-called “cheap labor” because they don’t have to spend as much on them; however, it’s that quality versus quantity debate. If you bring in employees who don’t have the necessary skills and abilities, is this going to impact your financial performance, at least in the short term?
Employees don’t need to be able to do every single thing, but you’ve got to determine if this person is a wise investment. Even those who can do the job now may only be with you in the short term until they find something more suitable, which is why you should view your staff as a proper investment.
What do you want out of your workers? Because if you are looking for ways to cut your financial corners, you can certainly bring in unqualified and inexperienced staff, but will you have benefited more from having someone who has greater potential and determination to help your business?
In Conclusion
Financial stability and growth are two areas that benefit from so many of the above practices. Arguably, the most effective solution is not planning months to months but actually recognizing that long-term success is about putting the stops in place and ironing out these potential problems now so you can not just dedicate your finances, but also your time to making your business perform at its best.
