How much do you know about small businesses in Australia? If you’re readily admitting to a knowledge gap, here are two important facts that you definitely should not miss: First, 300,000 SMEs are established annually in Australia. Secondly, there is a high failure rate of new SMEs due to their financial activities not being managed correctly.
As a small business owner, you are expected to stay on top of all your business activities – your cash flow included. We know that this is not that easy. Fortunately, strategic business advisory services assists you in taking those small steps towards your financial goals. You can start by determining which cash flow mistakes can put you in a potentially bad position. Here are some of them:
1. Neglecting your financial records
Some business owners do not prioritise the upkeep of their financial records. But did you know that neglecting your books can lead to financial forecasting problems? In contrast, if you have updated books, you can warrant a more accurate interpretation of your critical business numbers and where you are positioned at all times.
2. Combining business capital and personal finances
A beginner entrepreneur – especially someone who is struggling with business capital – is very likely to put business and personal resources together. Note, though, that combining these two could make it difficult to keep track of how much money your business actually earns. Not to mention that this also complicates your tax liabilities. Separation between business and personal finances and assets is a key planning matter for any business.
3. Misunderstanding revenue and profits
Whatever you do, do not use revenue and profit interchangeably. Scrupulously checking your cash flow requires having a basic understanding of revenues and profits. Revenue is the money coming in from the sale of your products and services. On the other hand, profit is the revenue you have earned minus your cash outflows. Knowing the difference is vital in setting your business financial targets.
4. Having misguided notions about debt
Not a fan of debt within your business? Think again! Your perspective on debt can turn your business around. Business owners with negative views about debt cannot take advantage of its potentials in expanding business reach and potential growth. So the next time a financing opportunity comes up, be sure to seek advise from your accountant or business advisor before giving a point-blank ‘no’.
5. Doing everything on your own
Accounting, bookkeeping, and tax compliance are business financial processes that you can learn as a business owner. But should you take charge of all of these functions? Taking full responsibility can rob you of the time to focus on your core business activities, possibly affecting your business performance. You wouldn’t want to threaten the stability of your business, wouldn’t you?
Effectively managing your own business means having a clear grasp of common business financial practices that you should veer away from. This way, you can put your mind at ease, knowing that all your resources are being well taken care of and you are focusing on your most valuable contribution to the business.
Need further assistance in managing your business finances? Virtual CFOs can help! Find out how these professionals can revolutionise your business. Learn all about virtual CFOs with our free eBook. Click below to download your copy.