Kris Aquino recently posted a cryptic message on her Instagram about potentially losing tens of millions of tax paid trust fund for her sons. As you read the lengthy message, you’ll soon discover that this likely painful financial loss is due to deception. A million-peso loss is crippling. So it’s understandable that the former president’s youngest daughter and popular TV personality is losing sleep over it.
Trust fund lost to deception jeopardizes the future of the recipient, but lost profits, or worse, bankruptcy in business victimizes the employees and their families, and yours.
Wake Up and Smell the Coffee
Financial mistakes are ruinous, and their effects are far-reaching. This is why as an entrepreneur you need to cultivate skills where money matters are concerned. Yes, you can hire professionals to organize your books, arrange your tax payments, and maybe create a financial plan for your business. The danger in passing off such critical tasks is that you relinquish control of your enterprise to someone who may not be as invested as you.
No one, more than you, has the motivation to gain as much profit and maximize wealth from your business. And realizing this goal requires not just financial literacy but management skills, too.
When you know how to manage your cash flow, when and where to invest funds, and track and measure your company’s performance, you won’t have to lose sleep over poor decisions that lead to costly mistakes.
As a start, here are some of the common financial mistakes you need to avoid:
Spending more than you can earn
Is the expense you’re making today going to generate revenue? It’s understandable to get the best equipment for your business. This makes sense if your operations rely on innovative systems to produce goods or deliver efficient services. But if you’re buying a posh laptop or leasing a high-end office in a trendy commercial district, you might be spending on things that might not grow your business. Sophisticated computers in a sophisticated business address could offer little value to your bottom line.
Grow your business before splurging on items that are just “nice to have.”
Failure to manage your cash flow
How much cash reserve do you have and how long will it allow your business to stay liquid? The in and out movement of money in your company can determine success or failure. Without sufficient funds to meet your obligations, from salary to bills, you’re likely to struggle. You might even have to borrow money from banks or other financial institutions to stay afloat.
Cash flow management requires foresight to help prepare your business for “what ifs,” and it also means using the right tools.
Using manual processes to this day
Whether you’re running a startup or an established operation, your business needs automated processes to stay efficient and productive. Both outcomes will mean savings for your company. Consider the time it takes to create a cash flow projection or a financial plan. When you’re busy crouched over a spreadsheet, you might miss opportunities to engage potential clients or delight customers.
When you use cash flow management templates or use CRMs, you’ll have time to grow your business.
Focusing on gross profit and gross profit margin
Both indicate how well your business is doing based on the sales and costs of your goods. These metrics show you what kind of revenues you’re generating and just how effective you are at managing the production of goods or services. But these aren’t the only measures of profitability.
Don’t forget to look at your taxes and operating expenses. You’ll also want to evaluate several financial metrics over a certain period to determine just how well your business is performing in the last couple of years or so.
Financial mistakes will happen, but they become inevitable when you fail to plan and invest in your skills to grow your business. When you know more about managing your money, you’ll be better prepared against deceptive tactics.