Statistics are unanimous: between 50% and 80% of new SMEs do not make it past five years of existence. And poor cash flow management is the cause of 1/4 of all business failures. No need to be a scholar to understand that managing your company well ensures its durability. Management errors are often costly and seriously damage the company’s reputation. Here are a few classic mistakes that you should be aware of in order to improve your financial management.
Do not use professionals
Refusing to collaborate with competent professionals is one of the main reasons why businesses fail to function and grow. You probably can’t do everything. So outsource the tasks to experts in their respective fields. Surrounding yourself with expertise makes life easier, because as a manager or freelancer, you have limits. If you prefer to take the risk of doing without the required skills, you will lose time and money. Indeed, an expert has a price, but it will allow you to go as fast as the need arises, but also avoid you to make more costly accounting mistakes for example.
Not using a good accounting management software
One of the most common causes of unnecessary money loss is data entry errors. While it is impossible to prevent all data entry errors, it is possible to put procedures in place and use tools to ensure that entries are identified and corrected in a timely manner. Accounting software will save you from tedious calculations, endless data retranscription, etc.
Moreover, you will not be able to really have a view on the financial health of your SME without the help of a dedicated software. Implementing this type of software will contribute to a more efficient financial management of your activities thanks to bookkeeping, monitoring of financial statements, etc. This software will also allow you to invoice customers or collect payments and thus save a considerable amount of time for other activities related to your business.
Do not keep accounting records and administrative documents
It is common to learn that an entrepreneur or self-employed person has misplaced his or her business expense receipts. Some of these expenses are reimbursable. You risk losing tax deductions by not keeping your accounting documents.
Be sure to keep all your accounting documents in a cupboard and categorize them in chronological order by type of expense. The same goes for your administrative documents, which you should also keep for at least the minimum required period. A good organization, more than necessary, is essential for a better conservation of your financial and administrative documents.
Do not set financial goals
Thinking that simply prospecting and constantly seeking new customers is enough to compensate for the lack of concrete financial goals is a mistake to avoid. Developing growth strategies actually allows you to clarify and quantify several situations.
Do not implement management dashboards
A management dashboard allows you to keep an eye on the financial objectives you have set for yourself. This type of chart allows you to monitor the financial health of the SME. It allows you to make and expand your forecasts. A management dashboard allows you to :
- Anticipate cash flow problems by monitoring your three management indicators: working capital, working capital requirements and break-even point;
- Set realistic financial objectives in terms of turnover and anticipate any increase in costs;
- Prepare a fundraising campaign with financial partners;
- Negotiate an overdraft or other short-term financing with your bank;
- Maintain the performance necessary for the company to ensure its development potential and thus face the competition.
Forget about deadlines
You need to establish a backlog of financial and legal obligations that are incumbent upon you. Failure to meet the deadlines will expose you to surcharges.
Spending without wisdom
Having a budget and a dashboard allows you to avoid the trap of frivolous spending and lets you see if you are living beyond your means or not. Sometimes it may be necessary to cut back on expenses to better protect cash flow and you need to be able to see clearly to make the right decisions.
Confusing personnel with business
Perhaps you sometimes look into the company’s account to buy yourself a watch, for example. This is a serious mistake that will certainly hinder the smooth running of your SME if it happens again. It is in your best interest to keep your personal accounts separate from your business accounts. You can open a business bank account and apply for a corporate credit card. This will make it easier for you to differentiate your different types of expenses. Also, applying for a corporate credit card from the start will allow you to develop a better credit history. This is something that will certainly work in your favor in the future if you ever consider applying for financing from Simplypay.
Avoiding confusing business and personal expenses ensures reliable and successful business accounting. It will be possible to save money for the financing of future needs that could be more important for the development of the SME.
Not keeping your accounts up to date
If you don’t keep your books up to date, you may find that a client has not paid for a service for several months and your cash flow is in trouble. You need to find time to meet your tax obligations, whether it is during the day, week, month or quarter.
Not following the evolution of the legislation and your obligations
When it comes to taxation and accounting, legislation changes quite quickly and you have no choice but to comply with it. It is your duty to make sure that you are aware of the latest measures in force. You can consult professionals such as certified accountants who can advise you on the legal or contractual provisions that are incumbent upon you.