4 SME Financial Mistakes That Sink The Business

4 SME Financial Mistakes That Sink The Business

            Running a business is not for the faint-hearted nor the fickle lot, bouncing from one chase to another on gossip whim. Waves of challenges will always be in the backdrop of windy change that either makes or breaks existing structures.

Despite the fact that finance is one of few icebergs that can directly sink solvency, financial risk can still be reduced by keeping expenses and cash flow on a tight watch.

The following are four SME mistakes that are often overlooked, along with tips to circumnavigate them:

1. Mixing business and personal budget

In the early days of doing business, it is sometimes necessary to use personal budget for company expenses.  By not separating business and personal means, by either applying the formar for the latter or vice versa, however, it could affect liquidity of both the owner and the business in the long run.

When starting a business, a very crucial issue is to separate the wallets, i.e., one for the company and the other for your own personal use.  This involves opening separate bank accounts and,

if possible, using organizational credit cards in lieu of personal credit cards as these will not lead to confusions as regards money in the account as well as other tax problems that will ensue while enabling you to more accurately assess the company’s financial status and locate dubious spots that could potentially become major problems.

2. Not creating a budget for important projects and not sticking to the spending plan

For many who are office workers or employees, making a budget is like being at war.   But if you are a business owner, it is essential that a budget is carefully created.

Creating a budget is to create a carefully designed spending plan from available money.  It ensures that enough money is allocated for the things that are needed. It will also keep the project in the black, out of the red, or help you work your way out of debt to remain solvent.

As such, it forces project managers to be more careful in the areas of purchase orders, inventory, employment of staff or development matters, as well as all related financial matters. 

To the contrary, without a budget the activities mentioned above could present big challenges that threaten overall cash flow. This is particularly true for seasonal business where high season cash flow is needed to low season operations afloat.

The good news is that new applications such as Adaptive Insights, Scoro and Centage  have nowadays been designed to enhance the setting up of your budget as well as expense auditing.  They are recommended for you to experiment on.

3. Not seeking external or alternative funding sources when necessary

Working capital is very crucial for business.  Whenever it is low, problems ensue, which can affect the business credit score as low working capital causes late payment of salary and, in turn, employee resignation. 

In some cases, understocking inventory and supply or workforce shortage can lead to below-standard services and potentially negative impact on the overall business picture. 

The biggest problem is our inability to duly meet financial obligations, which affects many aspects of the business.  With this knowledge in mind, you do need to know and make careful plans concerning cash flow or working capital.

4. Not keeping tabs on credit score

Whenever you have to borrow money for the purpose of business continuity and/or expansion or for whatever reasons, a credit score is very crucial as your determination and dedication would mean nothing unless your creditor decides that you do not qualify.

Imagine if you were the creditor.  Would you extend credit to someone with apparent inability to pay debts?  Clearly, no one would want to be the accountable creditor in such a situation.  Therefore, in your capacity as owner or business operator, you must make all efforts to maintain a healthy credit score for the both the company as well as yourself.

Aside from the four slippery slopes depicted above, there are many other types of problems that could also affect your business’ financial status.  If you are currently unable to or not planned thoroughly enough to cope with all financial aspects, you should start avoiding things that can potentially lead to financial problems and commence proactive management to keep your ship asail.

Compiled by BLOG.SCGLogistics

References and photos nav.com, freepik.com

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