Money is at the heart of every business decision and while many business owners focus on making more of it, they don’t concern themselves with the mistakes that can cause them to lose it.
The result is watching in frustration as your business bleeds cash, unable to fulfil the promise of its goals due to poor financial management.
While all businesses have unique circumstances, most financial mistakes are very similar. So, if you want to avoid the situation described above, the key is to familiarise yourself with the most common mistakes that businesses make.
In this article, we’ll explore six financial mistakes that cost your business.
Failing to budget properly
Creating a comprehensive budget allows you to manage your finances accurately and efficiently. It also acts as a record-keeping system that can help you track your sources of revenue and expenses. Without one, it’s all too easy to fail to make payments on time and spend more than you can afford.
Neglecting business insurance
Having the right business insurance protects your business from unexpected financial risks. If you don’t have the right coverage, then you’re left exposed to unforeseen events. Consider the unique needs of your business and ensure that you take out the right types of business cover accordingly.
Poor tax preparation
As a business, it’s your responsibility to ensure that you are charging the correct amount of VAT, and that you have accurate tax reporting for the tax authorities. If you don’t get it right, your business can be subject to penalties – and even legal action where there are potential cases of fraud.
Each tax and duty has specific rules on penalties, but in general HMRC will charge penalties for:
- Late payment or filing
- Failure to notify tax liabilities
- Inaccuracies on tax returns
To make sure you’re filing your business tax correctly, consider investing in specialist software that improves your business’ tax determination accuracy or partnering with a firm of external accountancy experts.
Inaccurate reporting
Financial statements like balance sheets and year-end revenue statements contain vital information about the health of your business. Stakeholders rely on the accuracy of this information to be able to make critical decisions with confidence.
Unfortunately, this information can be reported inaccurately for a range of reasons, including human error, unclear communication and insufficient financial processes.
Not only can inaccurate reporting lead to poor business decisions and reputational damage, but it can also attract regulatory fines by the revenue and tax authorities.
Borrowing money you don’t need
Many businesses fall into the trap of borrowing money simply because banks are willing to lend it to them. Bear in mind that loan providers will always pursue opportunities to collect interest rather than what’s best for your business and finances.
Try to borrow only as much as you need to grow your business. Borrowing excessively is a large burden that is often too heavy for organisations to bear.
Overlooking cash flow
Without a healthy and consistent cash flow, your business won’t have the resources it needs to grow and scale the company, develop new products and services, and provide a good level of service to your customers – even if the profits are evident.
You can’t purchase raw materials, hire staff or pay business premises bills with cash you don’t have. So, while it’s good to make allowances for customers, losing sight of your credit control can land your business in hot water.
Avoiding common mistakes is crucial for preserving your business’s success and growth. Neglecting potential financial errors can prove costly to your company’s operations. However, by familiarising yourself with the most prevalent pitfalls that organisations encounter, and actively taking measures to circumvent them, you can prevent the risk of potential revenue loss.
