All business owners will make mistakes with their finances, especially during the early days of the company becoming established. While most will learn from their misjudgements and move on, some financial errors can affect the future of a business in the long term, and even large corporations are guilty of this. Small and medium-sized enterprise can learn from the mistakes made by corporate giants.
Communication errors
As a business develops and grows, there will be a change in the management structure, which requires a stringent communications system. All parties must work together so that any practices put in place will be rolled out uniformly. Finances are especially essential, and having one person dealing with finance can be beneficial. Outsourcing to management accountants can help to introduce a uniform approach to financial management.
Bad decisions
A number of large corporations have been known to hire extra staff and open new branches – only to pass through a period of cutbacks a short while later. This can often occur when a large contract is in the pipeline or payments are owing from clients. However, if the contract fails at the very last minute, or the payments don’t arrive, the company will experience cash flow difficulties, often resulting in cutbacks.
Credit control
A large corporation will commonly offer credit much more easily than a smaller business. With so many clients, a few missed payments may be viewed as a drop in the ocean, especially when the company wants to build its reputation on offering accessible credit terms for all. However, cash flow can be seriously affected by clients not making regular payments in a timely manner, and this in turn can have a negative impact on company finances. Retain strict credit control and be firm about repayment terms.
Sources of revenue
During the early days of running a company, there will probably only be one or two sources of income. As the company develops, more streams of income should be added so that the business isn’t reliant on just one source. Diversity is required for long-term growth, and may include exporting or another form of branching out. Creating a reliable source of finance is crucial to survival in the long run, especially if the revenue source could be prone to economic changes.
SMEs could look at various corporations and see how they manage their finances, including growth strategies and financial management. Outsourcing to a professional in the initial days of a business can help to build a secure foundation for the future.