Running a business is tough. Often business owners and entrepreneurs wear multiple hats and get too consumed with daily operations of their business. They become Marketing directors, sales agents, customer relation officers, HR managers and everything else to keep their business running. They adopt survival mode and spend their days dealing with business issues as they arise…and many end up getting lost along the way. I came across many common business mistakes and priorities overlooked by business owners that threatened their long-term viability. Here are the 7 business mistakes you need to avoid to succeed:
1- Not preparing a budget:
Many business owners know what they want and have clear objectives. However, they don’t prepare a budget for it. How will you know if you can sponsor a marketing campaign mid-year or hire a new staff if you don’t have the visibility of financial resources available to you at that time? Will you wait for that specific month to check and decide? It will be too late! It is critical that business owners create a budget and define the financial structure and resources required to achieve their objectives. It helps reduce the uncertainty and provides solid basis for all their decisions.
2- Not having a Cashflow forecast:
Cash is the king, even in business! You can be the richest businessman in the world with many properties and stocks, but if time comes where you need $20,000 and you don’t have a sufficient balance in your bank account…you are in serious trouble! Cashflow forecast is crucial to make the right spending decisions at the right time. Spend, save or request for a credit facility? Without a cashflow forecast, how will you possibly know? YOU CAN’T! On the other hand, Cashflow forecast will help you realise in advance when will you enjoy excess cash to invest it elsewhere or when will you face a cash shortage to avoid it before it happens.
3- Not tracking performance:
In the past, it was enough to merely report the history of your financials and get on by. In today’s increasingly competitive and rapidly changing business environment, the tables have turned. They say, “if it gets measured, it gets done!” Business owners need to track and measure their financial performance regularly and take corrective actions when required. This is how objectives are achieved! Are sales increasing at a faster paste than inflation? Are profits growing as planned? Are costs well managed? Is the business liquid enough? All these performances measures and many more should be always under your radar and checked regularly. Ideally every month.
4- Not Knowing and understanding costs:
You can be selling very well, but not knowing your cost elements and structure is a terrible mistake to do. Do you know how much you need to sell to breakeven? Are all your products or services selling at a profit? Do you understand your cost drivers? Not all business owners can answer these questions with an affirmative “yes” and they don’t realise that they are drowning with every product or service they sell! Every transaction becomes a liability and their business becomes insolvent in no time!
5- Not knowing Stock optimum level:
For product selling businesses, stock management can gradually make it or break it. Business owners need to have a clear systematic methods for managing their stock . You need to make sure you have enough stock not to lose sales opportunities but in the same time you must avoid having extra stock and additional carrying cost you don’t really need. Having and maintaining stock drains your profits as it incurs insurance, storage, handling and spoilage. Knowing your optimum stock level is crucial to achieve a healthy balance between sales opportunities and stock carrying costs.
6- Not preparing “What if” scenarios:
“What if” financial modelling is a great tool that helps business owner realise their financial position outlook in a future date if they pursue certain scenarios like increasing sales price, opening a new branch or embarking on a new business venture. Before pressing the “go” button for any decision, you better do a financial model to assess your financial opportunities and its impact on your business. “ I have a good feeling about it” type of decision can cost you your business.
7- Not consulting a CFO or a financial expert:
Entrepreneurs and business owners have amazing ideas and technical skills in their field, but they need a financial controller or a CFO looking at their business performance and providing them with advice and recommendations for growing profits. Many business owners believe they are covered because they have a bookkeeper or a tax accountant but unfortunately they aren’t as the skill set required is different. Can you ask a computer engineer to work on road bridge structures? The answer is “No” because it requires a civil engineer to do it. They are both engineers, but different branch and skill set. Financial Controller or CFOs are expert management accountant that have forward-looking accounting skills. They will help you grow your business profits, advise you throughout your way and help you avoid financial pitfalls.
If you are serious about growing your business, you need to avoid these 7 mistakes by all means. I understand it is overwhelming and time consuming for you to do. It also requires extensive financial and management accounting expertise to do it right. In TAX STORE RYDE we have virtual CFO service packages for every business size and need. We are experienced in financial management focused on growing clients’ businesses and unlocking profits. Let’s have a chat and discuss how we can help you take your business to the next level. Use this link to schedule your free consultation today:
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