Financial planning and analysis is a very important yet often overlooked aspect of small business management. Making sure you get this right will help you make wise business decisions. Unfortunately, financial mistakes are often made because of careless mistakes or because not enough time is spent analyzing the numbers.
This post looks at some common financial planning, analysis, and cash flow mistakes to avoid so that you can take charge of your finances.
4 Financial Planning, Analysis, and Cash Flow Mistakes You Should Avoid At All Costs
As a business owner or thinking about starting one, it is important to know the key financial planning, analysis, and cash flow mistakes to avoid. Here are the most common ones:
1. Not Having an Emergency Fund
If you are not prepared for an emergency, the stress of dealing with one will make your life difficult. A financial emergency can be anything from a car repair to a medical bill. It could even be losing your job or taking a significant amount of time off work due to illness.
The starting step in preparing for any financial emergency is setting aside an emergency fund. It is recommended that you have at least three months’ worth of living expenses saved to cover expenses if you lose your job or face any other unforeseen event.
2. Inability to Identify Current Profitability
It is important for people in business to know financial analysis and how profitable their business is at any given point in time. This information can help them decide whether they want to expand their company or cut back on expenses. If they do not know how much money they are making, they would not be able to determine if they should take on more products or services or hire additional employees.
3. Poor Financial Forecasting Model
You need to review all the important financial statements on a regular basis. This includes income statements, balance sheets, cash flow statements, and other documents that provide insight into your company’s health. You may also want to consider outsourcing a financial analyst from a cloud accounting company that can help you stay on top of this important aspect of running a business.
4. Ignoring Stock-Take and Inventory Records
A lot of businesses fail to take stock of their inventory regularly. Inventory is a significant asset of any business organization. It is imperative that you keep tabs on the level of inventory that you have on hand at any given point in time. The main reason for doing this is so that you can anticipate any sudden changes in demand for your products. This will also help you make financial analysis decisions about how much stock to order from your supplier or manufacturer, ensuring that you do not run out of stock unnecessarily.
Make Better Financial Decisions
When it comes to finances, even the seemingly small decisions can have long-term consequences that are difficult to foresee. It is critical to be cognizant of your financial decision-making process and, ideally, to make your financial decisions with as much information as possible. This will help minimize your chances of making a costly mistake.
Contact EBOS today to find out how we can help your business with financial management and accounting.