If I had to choose one business management weakness that I have observed in the many start ups and SMEs (small to medium enterprises) I have encountered, it would be financial management. Many large companies are also guilty of poor financial management but they are no longer the focus of my attention.
Financial management is the most ignored and the least forgiving. If you can’t maintain control over your finances then you won’t be in business for long.
One of the biggest mistakes is waiting until the accountant has finished the year end figures to find out what happened. Most accountants do a very good job of preparing Income Statements and Balance sheets but it is old news. By the time you see what happened, you are well into the next financial year.
Engaging a public accountant once a year does not guarantee success. Their job is one of compliance, not financial management. Their main line of work is reporting after the fact, and tax lodgement. It is not that they aren’t trained and capable of assisting you with financial management, but you have to ask for it.
You really need to know what is happening in your business week by week and month by month. Either you or someone who understands financial concepts should make financial management of your business a very regular priority.
One of the other main areas of concern is poor control over cash flow. Cash flow simply means money in and money out of your business. You might make a profit at the end of the year but there can be many days during the year where your business bank account is empty or overdrawn.
This occurs because the receipt of revenue and the payments of bills are patchy. Some customers make you wait 2-3 months for your income but many of your bills need to be paid immediately.
This is often compounded by the owner taking cash out of the daily takings for personal use. The argument is “It is all my money!” Well it’s not really. Your money is the part left over when all the bills, including GST and taxes, are paid.
Many people confuse sales revenue with profit and fail to understand the importance of positive cash flow. Recognising these differences could be one simple solution to saving your cash-starved business.
Read more in my next post in the series – business coaching Brisbane; financial management.
Check http://www.aikido-secrets-to-calm-success.com for business self development tips based on the powerful principles of the Japanese art of Aikido
Until next time!