Many entrepreneurs find money management difficult, especially during in the early days, and yet it is something that is absolutely critical to the success of your venture. Here are some of the most common money management mistakes that entrepreneurs make and how you can avoid making them yourself.
Not developing a clear financial plan
Establishing a clear financial plan from day one will help to keep your finances on track and ensure that your money is spent in the most critical areas of your business to boost profits and give you the best return on your investments. Developing a clear financial plan will help you to avoid the common mistake of getting too wrapped up in day-to-day business tasks and forgetting to take a step back to look at the larger financial picture. A simple financial plan including a detailed cash flow forecast will help you to always know where you are, plan for the future and drive your business forward.
Not understanding cash flow
Good cash flow keeps your business ticking over – and yet many entrepreneurs fail to understand its importance. Poor cash flow can absolutely cripple your business and mean that you don’t have the money in place to grow the business, so make sure you put strict procedures in place to manage it. A common mistake made by businesses, for example, is not invoicing customers quickly enough – and something as simple as speeding up that process can dramatically improve the cash flow and performance of your business. Not having formal records and processes means many entrepreneurs aren’t even aware when somebody hasn’t paid an invoice or owes them money!
Not getting the help of a professional on the grounds of cost
Many entrepreneurs reject the idea of using the services of a qualified accountant or bookkeeper due to cost, however this can often prove to be a shortsighted way of saving money. A financial professional can often spot ways of improving the cash flow and profitability of the business, for example, and there is also the benefit of saving time. Financial planning and drawing up financial statements can prove to be a difficult and time-consuming task, so by using the services of a professional you can free yourself to concentrate on the things you are good at and stop yourself stressing out over record keeping and tax returns.
A lack of accounting knowledge
Many new entrepreneurs don’t even know or understand what basic financial records or terms actually mean – things such as turnover, gross and net profit, cash flow, the profit and loss account, and the balance sheet. Even if you decide to use the services of a professional accountant, understanding these key terms, what they are and why your business needs them is essential knowledge for any entrepreneur and can help you to better money-manage your business and plan for the future.
Not realising the importance of money management from day one
Many businesses and entrepreneurs only realise the impact poor financial management has had on their business when it’s too late. By taking money management seriously from day one and, if necessary, getting the advice or assistance of a professional, you can stop business-threatening problems such as cash flow issues and poor investment decisions before they become major irrecoverable issues.
Mixing business and personal finances
A common mistake made by new entrepreneurs operating as sole-traders is mixing business finances and personal finances. It is essential that you keep these separate, so set-up a specialist business bank account before you start trading and keep all essential records and documentation from day one.
Where can I get help?
Information about money management, financial planning and record keeping is available for free online. There are also numerous downloadable templates, spreadsheet outlines and plans available online that can help you to organise your information and gives you something to work from rather than starting with a blank screen. Your bank will also be able to offer you business and money-management advice and you can also consider using a professional accountant or book-keeper.