Discover 6 Most Common Mistakes in Financial Management
Brazil is one of the most entrepreneurial countries in the world, but few companies survive the second year of life. The main villain are the mistakes in financial management.
It is common to find people extremely capable in their area of action, with innovative ideas and full of desire to grow and impact society. However, the lack of knowledge and practice with the company’s finances is crucial and causes the enterprise to fail.
Financial management is of extreme importance for any type of business, regardless of its field of activity. It is responsible for allowing the entrepreneur to control cash flow, ensure payment of expenses, identify superfluous expenses, reduce costs and even make new investments.
In other words, the entrepreneur will know exactly what should be done with the money that is in the company’s account. Are you interested? So, continue reading this article and discover 6 most common mistakes in financial management. Do not miss this opportunity.
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The 6 most common mistakes in financial management:
1. Do not control cash flow
Cash flow is a way to track all the financial movement carried out in a predefined time frame. All incoming and outgoing money must be considered, with no exception (even those “insignificant” expenditures should be noted).
It can be said that not controlling cash flow is one of the main mistakes in financial management. Not knowing the amount of money that comes in and leaves your company is indicative that the situation is not very favorable.
It is worth noting that a well-structured cash flow represents far more than paying bills on time and keeping the company out of the red . It can help the entrepreneur plan for the future by planning investments and providing ways to ensure the survival of your business. Think about it!
2. Mix personal and business accounts
Mixing personal and business accounts is another of the mistakes in financial management that can hurt your company. Unfortunately, it is common to find entrepreneurs paying their residence bills with company resources or making purchases for company on their personal credit card.
Apparently, this kind of situation does not seem to be a big problem, but it is. Not separating the accounts causes the manager to lose control of the amount that is the responsibility of the company and the amount that is the personal responsibility. In addition, planning the company’s future becomes impossible.
The best way to avoid this kind of problem is to set a value as pro-labor, working as a wage, and obviously including it in the cash flow. So every month you will receive the same amount of money, which should be used to clear your accounts.
3. Do not plan
As highlighted in previous topics, financial planning and programming for the future of the company is critical to the survival of any type of business.
We can even say that financial planning is what will make your business thrive and achieve its goals. So you need to identify where you want to go and what needs to be done to reach that threshold.
Set a budget for each industry sector. Make semi-annual or annual projections, adjusting them whenever necessary. Remember, “If you do not know where you want to go, any way is good.”
4. Do not control stock
The stock of the company must be seen as a great investment that has already been realized and that needs to generate profits. So controlling it is critical. Imagine, for example, that you have two types of products: one that pleases the public and has high sales and another that is not so bought.
From this principle, your stock must have a larger quantity of the first product than the second. If you always buy equal amounts, it’s okay to say that you’ll have a lot of capital stuck in your inventory, generating unnecessary costs (such as storage) and taking too long to turn into profit.
In other words, you could have invested less in this type of product and more in the other, selling more and increasing your percentage of profitability. In addition, good inventory control is able to find good suppliers and show the importance of each item sold in your business, becoming an interesting way to make sure it is worth continuing to invest in that particular item or not.
5. Not knowing how to calculate the selling price
Not knowing how to calculate the selling price is perhaps one of the main mistakes in financial management. In order to correctly calculate the price for which your goods or services will be sold, you must have the necessary expenses for production.
Costs with raw material, labor, fixed costs of the company, displacement of professionals, machinery needed and so many others must be present in the formation of the sale price. You can not forget the profit margin, can you?
Even the maximum discount you can apply to each item should be thought out, preventing the company from taking big losses or losing sales by not knowing how much can be decreased from the final price while maintaining certain profitability.
6. Failure to manage profit
Last but not least, we highlight the inability to manage the profit made. Consider, for example, that in a given month you sold a lot more than usual. So what to do with that “extra money”?
Many entrepreneurs do not know what to do and end up spending this money in a way that can undermine the progress of the company’s activities. The ideal is to reinvest some of the profit in the company itself, seeking to automate processes , optimize sales, improve marketing and many other actions aiming always better results.
We have listed, throughout this article, some of the key mistakes in financial management of a business. It is of great value to be able to identify them as soon as possible, taking time to provide solutions and avoid the early closure of activities. Do not waste time, change the financial management of your business, achieve your goals and watch your business grow more and more!
So, did you like our article? What do you think about the mistakes in financial management that we highlight? They’re pretty common, are not they? So, share this article on your social networks and help other entrepreneurs like you!