Business Tips

Business financial pitfalls you should avoid

By Ryan Bradman | February 24, 2020

There is no denying that money is the backbone of any business, whether it’s a startup or an established enterprise. While making money is the goal, you also need money to fuel the company. Unfortunately, in pursuit of money, many business owners end up making mistakes that end up putting the company at risk. These common financial pitfalls have been the end of many businesses, but you can avoid them.

Lack of funding

A critical aspect of starting any business is enough capital. However, it takes time for a company to start bringing in profits. This means you need to have enough cash reserves to keep the business running, pay employees, and clear all monthly bills for a few months. Sum up all your monthly expenses and plan for them without relying on the business. Most people don’t prepare for this and end up in trouble when unexpected expenses come along, and there are no funds.

Low debt-income ratio

Every business takes out loans at some point, and while there is nothing wrong with this, the unpredictability of the market could make it impossible for you to pay. When running a charitable organization, for instance, a loan may come in handy as you wait for donor funds to hit your account, only for the donor to withdraw their support. While this is not a unique situation, you risk falling into solvency if you can’t pay your bills. In such cases, an insolvency practitioner charity is your best option. Hitting a financial snug is discouraging, but an insolvency advisor will offer you the advice you need to find a lasting solution. Whether you need a merging candidate, fundraising options, insolvency solutions, dissolution of your organization, or external financial expertise, an insolvency expert will help you get the right solution for your charity.

Failing to analyze cash flow

How much you spend versus how much is coming in makes the basis of your cash flow. Many entrepreneurs spend so much time dealing with sales, HR, marketing, and product development that they forget to analyze their cash flow. If you are bringing in $1000, but you used $1200, your business isn’t going to survive. It is crucial to keep a tab on your books at least weekly, so you know what you need to adjust.

Spending too much

You must spend money to make it. While this statement is right, you have to take it with a pinch of salt when spending. Yes, business requires money to run. However, using excessive amounts on unnecessary office space, fancy computers, huge billboards, and team-building trips is just bad for business. Soon you will afford to upgrade the IT facilities and even take those trips if the company succeeds.

Losing money is far much easier than earning it. Fortunately, it takes a string of bad financial decisions to bring a business down. If you can learn to keep a budget, save for emergencies, and separate your personal finances from the company, you are on your way to being a huge success.