THE MAIN MISTAKES IN ACCOUNTING FOR FINANCE IN BUSINESS
What is the goal of an entrepreneur? Get profit from your activities. Of course, first, he thinks about the value that his product represents for the target audience, self-realization, independence, and then about the profit. How does a single businessman consider his profit? Usually, at first, he simply puts the proceeds in his wallet and thinks that this is his honestly earned money, which belongs only to him. This is a mistake. What other financial mistakes businessmen make at the beginning of their journey?
According to polls conducted by Business Forward in July 2015, 80% of business owners realize that there are some problems with finances in business, but they prefer to turn a blind eye to it.
THE MOST COMMON MISTAKES IN BUSINESS FINANCE MANAGEMENT
1. MANAGEMENT AND DECISION MAKING ON “FEELINGS”
It still somehow passed, while things were going more or less smoothly, but in difficult times it leads to mistakes that are costly. It’s like driving in the dark on a bumpy unknown road without headlights and instruments. It is possible but fraught.
2. LACK OR UNREALISTIC FINANCIAL PLANNING
This leads to “box office gaps” and lost income.
3. IGNORANCE OF THE REAL PROFITABILITY OF THE BUSINESS
Money, income, and profit are confused. The management profit and loss account is not used.
As in an old anecdote, when a hare traded in a hundred rubles for fifty, and to the question “How are you?”
It is painful to realize that the business has been unprofitable for several months, but this is revealed when a chronic problem turns into an acute stage of a lack of money.
And then the owner realizes, but marketing will no longer help. More than once I came across a situation when they seek advice on the issue of sales growth, and a simple financial analysis shows that the best solution is to fix losses and abandon this business while there is still something left.
4. THERE IS ALMOST NO DIFFERENCE BETWEEN COST AND REVENUE
And often the problem is that even with large sales volumes, profits are eaten up by discounts, there is no difference between profitable products and unprofitable ones.
Profitable directions cover unprofitable ones. Resources are invested not in the development of profitable ones, but in support of unprofitable ones. You can’t define it without numbers.
5. ERRORS IN OVERHEAD MANAGEMENT
Failure to understand the difference between mandatory fixed costs and manageable costs, such as training yourself and personnel, marketing and promotion costs, business optimization costs, and building systems in business.
Traditional financiers consider all this to be an expense and try to reduce it, while it is necessary to reduce unprofitable unnecessary expenses, and not productive ones, which should be assessed by the return now and in the near future.
And many experiences an unmotivated fear of seeing the ugly truth, so they refuse to count the real figures of income and expenses.
WHAT I SUGGEST
To decide where and how you go next, first determine where you are now.
Finance is not rocket science. 🙂
And although the topic of accounting for finance in a small business often seems complicated and boring to entrepreneurs, it is possible to understand and control finances and resources faster, easier, and cheaper than it seems.