Common Financial Management Mistakes That Are Costing Your Small Business BIG
The biggest financial management mistake entrepreneurs make is hiring a bookkeeper or accountant and not making an effort to understand their own finances, says Precious Mvulane, GAD Consulting Services’ managing director and author of The Essential Finance Handbook, a guide that helps business owners to boost their businesses’ financial performance.
You cannot outsource your financial decision-making to your bookkeeper or accountant, says Mvulane, so it is in an entrepreneur’s best interest to better their financial skills.
Mvulane on the biggest financial management mistakes PLUS see solutions for each one.
Mistake 1: You’re ignoring your finances hoping they will get better by themselves
“This could be a phobia of numbers or [thinking] finance is too complex for them. The reasons are irrelevant if you want to be a successful entrepreneur. Frankly, an entrepreneur has no business [being in business] if they cannot handle finances. Business is measured by the finance results it produces.”
The solution: Have a basic understanding of your financial statements. Gerrie van Biljon, executive director at Business Partners Limited, in previous interview with SME South Africa, says it’s important to note that financial statements are not only prepared to comply with the Income Tax Act or to apply for funding. “They are a management tool available to the business owner to assist them to understand the financial position of their business.”
Mistake 2: You don’t keep a record of your spending
“Slips are not kept in any date order or filed and as a result [your accounting] reports don’t reflect your real financial situation. In most cases if this is happening it means the business owner is also mixing personal and business finances.”
The solution: Record every transaction. You should keep a daily record of how much you earn and spend. Keep receipts for everything you spend money on. Make sure you take pictures of your receipts or photocopy them because slips generally fade. Submit source documents to the accountant weekly or/and back up records using an online system.
Mistake 3: You can’t read or understand your financial statements
“Some will manage to keep the records but are unable to read financial statements to make an informed decisions about [possible] financial improvements.”
The solution: Continuously educate yourself. Start by reading finance books or articles daily. This will help to up your financial knowledge and skills. Short business and entrepreneurship courses are a good idea for entrepreneurs who wish to deepen their financial knowledge.