Financial mistakes of companies are more common than good business practice recommends.
Many times decision making mistakes are made that can negatively affect the financial health of the business. That is why adequate Management Control is key to the management of a company.
Most common financial mistakes of companies
Let’s see what the most common financial mistakes of companies are, in order to avoid them.
Not planning long term
The importance of this type of planning that allows companies to anticipate and prepare for future financial challenges, identify and mitigate risks. We have to know where we want to go, to be able to mark the path.
Establish realistic and achievable financial objectives and goals to make strategic decisions.
Failure to do so makes decision making difficult.
We must try to anticipate possible economic crises and/or investment opportunities.
Know how to differentiate between a good idea and a business opportunity. Because not all of the former are economically profitable.
And the best way to know is to do a market study first.
Lack of annual budget
The budget is the key tool in any type of business. This must be annual. And it must be followed strictly, as long as the conditions of our environment have not changed significantly from the initial idea. It will mark in detail the roadmap regarding income and expenses. As well as the investments that are necessary to ensure the viability of the business in the long term.
Preparing it is the responsibility of the company’s management. With the help of its financial management. But it must involve the different departments that make up the organization.
And it must be the financial management who consolidates it to give the company’s management the total vision.
Possible deviations must also be included in the budget, with at least one more and less favorable scenario. And therefore, it must be continually reviewed to detect these possible deviations.
Not having an adequate and solid financial structure is one of the most serious financial mistakes of companies
This should allow us to have adequate management of financial resources, which includes:
- Maintain adequate and positive cash flow. We have already seen its importance in a previous publication.
- Optimal control of expenses, to avoid financial imbalances. And that will also help us be competitive in the market.
- Avoid too high fixed costs. Especially when we talk about new entrepreneurs.
- Have a fund or reserve of money that allows you to cover eventualities and unforeseen events. Guaranteeing for at least three months, the resource needs required for the operation of the business.
- Have an adequate level of debt. Failing in the previous points can cause us to need debt, which can compromise the viability of our company.
- Having an adequate financial structure makes it easier to obtain financing and inject capital from partners, shareholders or investors.
Not diversifying investments and not monitoring them
The resources owned by the organization must be placed in entities and assets that conform to its investment policies.
Said diversification can be in personal assets, investments in profitable industrial sectors, foreign currency, etc.
Not following up on these investments can generate unnecessary risks.
And if we talk about entrepreneurs and/or family businesses…
To the above, we must add some more specific cases
Not knowing how to control initial spending
The first months of the business’ life are going to be complex, so you have to invest in issues that are absolutely necessary for the development and growth of the company.
From the beginning it is key to correctly calculate the time it will take to start covering expenses. Believing that this will happen from day one is a serious mistake. Therefore, you have to be cautious. A newly opened business needs a long and constant injection of money, the first one is not enough. Therefore, when we start generating income, especially at the beginning, it is good that it returns to the flow of the business so that it enjoys good health.
However, investment in communication and marketing is essential for our business from the beginning. No matter how much we have the best product in the world, if we don’t make it known…
All of this must be balanced and managed properly.
Not having an adequate commercial policy
In addition to what was said above, in terms of communication and marketing.
We must have the appropriate price for our products or services. There are many issues that must be taken into account before establishing the price: costs, customer profile, competence.
AI, income objective… If we don’t know how to do it, we can always find professional experts to help us do it.
And once determined, know well who we sell to and how we do it. It must be offered regarding the payment method and terms to facilitate the purchasing process for different types of customers. But within the margins that our company or entrepreneurial project can assume.
Encountering delinquent clients who fail to pay invoices in the first phase of our company can be critical for us. You don’t have to sell in any way and at any price.
The best way to retain our customers is to give them alternatives, yes. But also let them see that we are serious.
Mixing personal and corporate finances as an example of financial mistakes of companies
This especially affects SMEs, the self-employed and new entrepreneurs. And it is more common than you might think, and much more than what is advisable and healthy for a business.
The company’s cash is for the company.
It is advisable for the entrepreneur or the family of a family business to set a salary for the work done. But clearly separating your personal finances from the company’s results. There will be time to distribute the benefits, according to the law. This way we will also avoid tax risks.
Not having a business succession plan
On many occasions, and speaking of family businesses, it is a critical point and source of conflict. It is important that organizations have a well-defined succession plan, agreed upon by family members, that guarantees the continuity and stability of the company.
Good because there is someone in the family linked to the business and knows it well. Good because there isn’t one and it has been defined that the reins will be held by someone trusted by the family, but external to it.
But not just to see who will be the person to run the family business. If not, because it will be responsible for ensuring that past or future financial errors are corrected and avoided.