4 Financial Management Mistakes Your Business Must Avoid
A dwindling cashflow is a common cause of business failure. Small and large financial gaffes cannot only strip away at your finances, but they could potentially place your company in jeopardy, as you might struggle to pay your overheads each month.
If you want to enjoy a healthy annual profit margin and long-term success in your industry, you must take control of your cashflow. Here are four financial management mistakes your business must avoid.
1. No Emergency Fund
An emergency fund could help to keep your business afloat during a difficult time in your industry or when you received an unexpected bill. To ensure your company is never faced with financial hardship, aim to save a minimum of three months’ worth of corporate expenses, which could ensure your company’s survival should an issue arise.
2. Unnecessary Business Expenses
Many business owners believe they need to make large expenses to separate their brand from their rivals. As a result, they might pay a significant sum for the latest technologies, office equipment, or staff salaries.
It is, however, a smarter approach to adopt a more frugal mindset. For example, invest in second-hand products, haggle with suppliers, and find an affordable lease for your office or building space.
Never spend a penny more than you need to, even when your company is generating a superb return on its investment. By running a lean business, you’ll have more money available to overcome a financial obstacle.
3. Avoiding Insurance
The right insurance policy could help your business to make a swift recovery following onsite damage or compensation claims. Yet, many companies make the mistake of not choosing the right coverage to suit their specific needs.
There a wide range of options to suit different companies’ needs, such as business insurance, cyber and data risk insurance, and employers’ liability insurance. It is, therefore, important to consider the potential risks your organisation might face and to find an insurance policy to match.
If you fail to invest in the right insurance policy, your business could be liable for a considerable amount of money, should a client make a claim against you. For example, if you regularly provide professional advice and services to clients, you should learn more about professional indemnity insurance as well as public liability insurance. Reputable providers such as Hiscox can instantly provide coverage of up to £10 million with both professional indemnity insurance and public liability insurance so that your company aren’t caught out, with flexible policies tailored to your needs.
4. Failing to Budget
Many businesses are guilty of failing to budget each month, but it could be critical to your company’s success and survival. It ultimately helps a business owner to maintain a tight control of their finances, as they will know exactly how much money they will need to spend each month and where it is going.
Without a budget in place, you could fail to account for your tax obligations, insurance premiums, office expenses and more. If you spend too much, you may then need to apply for a business loan or run up debt on your credit card if you urgently need cash to pay for a debt repayment or corporate expense.