Avoiding the seven most common business financing mistakes is a key
component to a company's survival.
If you make these corporate financing mistakes too often, you will significantly reduce your chances of long-term business success
The key is to understand the causes and importance of each individual to make better decisions
>>> Error in corporate financing (1) - Without monthly billing.
No matter the size of your business, poor record-keeping leads to all sorts of problems related to cash flow, planning, and business decision-making.
Although everything has a price, accounting services are very inexpensive compared to most other costs a business incurs.
Once an accounting process is established, costs typically decrease or become more profitable because no effort is wasted on recording all business activities.
This mistake alone tends to lead to all the others one way or another and should be avoided at all costs.
>>>Corporate financing error (2) – No forecast cash flow.
No meaningful accounting means you don't know where you have been.No forecasted cash flow means you don't know where it's going.
Without taking stock, companies tend to drift further and further away from their goals, waiting for a crisis to force a change in monthly spending habits.
Even if you have a projected cash flow, you need to be realistic.
There has to be a certain amount of conservatism or it will become meaningless in a very short time.
>>>Corporate financing errors (3) – Insufficient working capital
No amount of keeping records will do you any good if you don't have enough working capital to run the business properly.
This is why it is important to create an accurate cash flow forecast before founding, taking over, or expanding a company
Too often the working capital component is completely ignored and the focus is on investments in capital assets
When this happens, the cash flow crisis usually becomes apparent quickly because there are not enough funds to properly manage the normal sales cycle.
>>> Corporate financing errors (4) – Poor payment management.
Unless you have significant working capital, forecasting, and accounting, you will likely. have problems with cash management
.This results in the need to extend and defer overdue payments
.This could be the very edge of a slippery slope
I mean, if you don't figure out what's causing the cash flow problem in the first place, spreading out the payments can only help you dig an even deeper hole
.The main targets are government transfers, trade payables, and credit card payments
>>> Corporate Financing Mistakes (5) – Poor credit management
Deferring payments for both short and indefinite periods can have serious consequences for creditworthiness.
First, late payments on credit cards are probably the number one cause of credit destruction for both businesses and individuals.
Second, NSF checks are also captured by commercial credit reports and represent another form of black labeling.
Third, if you delay a payment for too long, a creditor could file a judgment against you and further damage your credit.
Fourth, when you apply for a future loan, defaulting on government payments may result in many lenders automatically rejecting the loan.
It gets worse.
Every time you apply for credit, credit inquiries appear on your credit report.
This can cause two additional problems.
First, multiple inquiries can lower your overall credit score.
Second, lenders tend to be less willing to lend to a company whose credit report contains a large number of inquiries.
If you find yourself in situations where you are short of cash for a limited period, you should proactively discuss the situation with your creditors and negotiate payment arrangements that you can live with and that do not jeopardize your credit rating.
>>> Corporate financing error (6) – No profitability recorded
The most important thing financially for startups is to become profitable as quickly as possible.
Most lenders should provide at least a year of profitable financial reports before considering lending based on the strength of the business.
Before short-term viability is proven, business financing depends primarily on personal creditworthiness and net worth.
For existing companies, historical results must demonstrate profitability to acquire additional capital.
The measurement of this solvency is based on the company's net income recorded by an external auditor.
In many cases, companies work with their accountants to reduce corporate taxes as much as possible, but in doing so they also destroy or limit their borrowing capacity when the company's net income is insufficient to pay off additional debts.
>>> Corporate financing errors (7) - Without a financing strategy
An appropriate financing strategy creates 1) the financing necessary to support the company's current and future cash flows, 2) the debt repayment plan that the cash flow can service, and 3) the emergency financing necessary to meet unique or unplanned commercial events.
This sounds good in principle but is often not practiced well.
Why?
Because financing is largely an unplanned event that occurs after the fact.
It seems that once everything else is done, a company tries to find financing.
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