Avoiding the seven most common business-financing-mistakes is a key component
of 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.
Business financing mistakes (1):
no monthly accounting
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 all this 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.
Dieser alone tends to lead to all the others one way or another and should be avoided at all costs.
Corporate financing errors (2):
no forecast cash flow
No meaningful accounting means you don't know where you have been. The lack of forecasted cash flow leads to not knowing where the journey is headed.
Without taking stock, companies tend to drift further and further away from their goals, waiting for a crisis to force a change in their 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
Business Financing Mistakes (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.
Dieses is why it is important to create an accurate cash flow forecast before founding, taking over, or expanding a company.
All too often, the working capital component is completely ignored, and the focus is placed primarily on capital investment.
When this happens, the cash-flow crisis usually becomes apparent quickly, because there are not enough funds to properly manage the normal sales cycle.
Business financing mistakes (4): poor payment management
Unless you have significant working capital, forecasting, and accounting, you will likely have problems with cash management.
Dieses creates the need to extend and defer overdue paymentsthese 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.
Unless you have significant working capital, forecasting, and accounting, you will likely have problems with cash management.
Dieses creates the need to extend and defer overdue payments
these 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 short or indefinite periods can have serious consequences for your credit score.
First and foremost, late credit card payments are probably the most common way for businesses and individuals to damage their credit.
Second, bounced checks are also noted on corporate credit reports and are another form of black mark.
Third, if you delay repayment for too long, the creditor may enter a judgment against you, further damaging your credit score.
Fourth, when applying for a future loan, non-payment by the government may result in automatic rejection from many lenders.
It's getting worse.
Every time you apply for credit, credit inquiries appear on your credit report.
This can cause two additional problems.
First, repeated inquiries can lower your credit or overall score.
Second, lenders are generally less willing to lend to companies whose credit reports contain many questions.
If you find yourself in a situation where you have been short on cash for some time, you should actively discuss the situation with your creditors and negotiate repayment terms that you can both agree to and that will not jeopardize your creditworthiness.
no profitability recorded
Missing financing strategy
For startups, the most important thing financially is to make profits as quickly as possible.
Most lenders need to have at least a year of profitable financial statements before they will consider lending based on the strength of the business.
Before short-term viability is demonstrated, corporate financing relies primarily on personal credit and equity.
For existing businesses, historical performance must demonstrate profitability to raise additional capital.
The measurement of this repayment capacity is based on the net profit recorded for the company by an independent auditor.
In many cases, companies work with their accountants to reduce corporate taxes as much as possible, but at the same time destroy or limit their debt capacity if the company's net profit is insufficient to additionally cover debt service.
Because financing is largely a later, unplanned event,
Once everything else is sorted out, the company will try to find financing.
There are many reasons for this, including that entrepreneurs are more focused on marketing, people believe that it is easy to get financing when needed, the short-term impact of putting off financial matters is not as immediate as with other things, and so on.
Whatever the reason, not having a viable financing strategy is truly a mistake.
However, a sensible financing strategy is unlikely to exist, if one or more of the other six errors are present.
Deferring payments for short or indefinite periods can have serious consequences for your credit score.
First and foremost, late credit card payments are probably the most common way for businesses and individuals to damage their credit.
Second, bounced checks are also noted on corporate credit reports and are another form of black mark.
Third, if you delay repayment for too long, the creditor may enter a judgment against you, further damaging your credit score.
Fourth, when applying for a future loan, non-payment by the government may result in automatic rejection from many lenders.
It's getting worse.
Every time you apply for credit, credit inquiries appear on your credit report.
This can cause two additional problems.
First, repeated inquiries can lower your credit or overall score.
Second, lenders are generally less willing to lend to companies whose credit reports contain many questions.
If you find yourself in a situation where you have been short on cash for some time, you should actively discuss the situation with your creditors and negotiate repayment terms that you can both agree to and that will not jeopardize your creditworthiness.
Corporate financing error (6):
no profitability recorded
For startups, the most important thing financially is to make profits as quickly as possible.
Most lenders need to have at least a year of profitable financial statements before they will consider lending based on the strength of the business.
Before short-term viability is demonstrated, corporate financing relies primarily on personal credit and equity.
For existing businesses, historical performance must demonstrate profitability to raise additional capital.
The measurement of this repayment capacity is based on the net profit recorded for the company by an independent auditor.
In many cases, companies work with their accountants to reduce corporate taxes as much as possible, but at the same time destroy or limit their debt capacity if the company's net profit is insufficient to additionally cover debt service.
Corporate financing errors (7):
Missing financing strategy
The right financing strategy creates 1) the financing necessary to support the company's current and future cash flow, 2) a debt repayment plan that can support cash flow, and 3) the emergency financing necessary to meet unexpected or unique business needs.
This sounds good in principle but is generally not well practiced.
Why?
For startups, the most important thing financially is to make profits as quickly as possible.
Most lenders need to have at least a year of profitable financial statements before they will consider lending based on the strength of the business.
Before short-term viability is demonstrated, corporate financing relies primarily on personal credit and equity.
For existing businesses, historical performance must demonstrate profitability to raise additional capital.
The measurement of this repayment capacity is based on the net profit recorded for the company by an independent auditor.
In many cases, companies work with their accountants to reduce corporate taxes as much as possible, but at the same time destroy or limit their debt capacity if the company's net profit is insufficient to additionally cover debt service.
Because financing is largely a later, unplanned event,
Once everything else is sorted out, the company will try to find financing.
There are many reasons for this, including that entrepreneurs are more focused on marketing, people believe that it is easy to get financing when needed, the short-term impact of putting off financial matters is not as immediate as with other things, and so on.
Whatever the reason, not having a viable financing strategy is truly a mistake.
However, a sensible financing strategy is unlikely to exist, if one or more of the other six errors are present.
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