Regardless of industry and experience, one financial blunder can sink a business
As a Business Coach, the one thing that my clients are probably tired of hearing from me is that there’s no formula for business success. It’s only true because each experience of being a business leader is unique.
What can be considered a certainty though is that financial mistakes can spell doom for a business. It’s just the way it is — money is the lifeblood of a business, and even tiny mismanagement of the whole concept of finance can have a huge impact on the long-term standing.
How well do you know your numbers?
What are these ‘financial mistakes’?
1. Failure to monitor your business credit score
Your business credit score is entirely separate from your personal credit score and tells the story of your business’s history with debt. Most of the elements that affect that number – your payments history, your debt utilization ratio, your length of history – are things that you can actually control.
As you grow your business, this number becomes enormously essential. Not only will it help you in the future with things like securing business financing, but it’s a public record, too. If another business is considering extending you trade credit and your business credit score is low, they could decline to extend you net terms, or offer you less-favourable ones. Your business credit card payment history can help boost your score. Staying on top of this number and monitoring it often is key to keeping your business in the best possible standing.
2. Neglecting to manage your cash flow
Cash flow is one of the most unfailing indicators of a business’s health. It gives you a picture of your survival in the short term, and through cash flow projections, you can see whether or not you’ll be able to sustain money for things like your fixed-cost obligations.
Business owners who don’t keep a close eye on their finances every day are at a major disadvantage. It’s a big mistake to not understand whether or not your business is cash flow negative, or if you’re getting dangerously close. Learn how to read your income statement and balance sheet, both of which are directly tied to your cash flow.
3. Not establishing a crystal clear budget plan
Some savvy business owners may be able to run their businesses without a financial plan, but you’ll have a rather difficult time succeeding without at least a rough budget to help guide what you can and cannot afford to spend on each month.
As a business leader, your job is to steer your new business towards profitability, and you can only achieve that if you have a carefully planned budget for operational, marketing and other expenses. Having a clear budget upholds financial discipline and paves the road to business growth.
4. Not putting money in marketing, sales, and research
Many business owners make the mistake of ignoring the importance of investing in marketing and sales, assuming that if they build a good product or service, it’ll sell itself. Still, it’s wrong to assume people will find you naturally. You have to meet people where they are and invest in customer research.
The assumptions you make about your consumer market’s desires and buying habits might not be true. Confirm them. Do some homework. Talk to other entrepreneurs and dig to find out which campaigns can give you your best marketing ROI.
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