Small and medium-sized enterprises (SMEs) are the backbone of many economies. However, limited resources and expertise often lead to financial challenges, increasing the risk of costly mistakes. As a Portfolio Financial Director, I have seen firsthand the significant financial impact these mistakes can have. Here are the most common errors I’ve encountered -
1. Inconsistent Bookkeeping
I firmly believe that consistent and quality bookkeeping creates a solid foundation for your business. Poor or delayed bookkeeping in a business means it is impossible to have an accurate view of the business’s financial situation which leads to a loss of financial control. Keeping your accounting system up to date lets you easily track receivables, upcoming payments, and due dates which enables better payment prioritisation and cash flow management.
Small businesses can benefit by outsourcing bookkeeping, where you effectively buy time to spend on the parts of your business that you enjoy and are good at – worth far more than the bookkeeping outlay. Medium-sized businesses may benefit from a review of their in-house bookkeeping team and training as required.
2. Lack of Management Information
To fully understand what’s happening within your business, access to management information (MI) is crucial. MI drives timely decision-making, removes the need to make decisions based on assumptions, and allows for comparisons over time to identify and address issues—giving your business a competitive advantage. It can also help maintain strong relationships with lenders and provides peace of mind that your finances are in order.
Relying solely on your bank account to manage the business, without proper MI, can lead to financial trouble, including bankruptcy. Good systems, processes, and regular monthly MI ensure you know your financial position with no unpleasant surprises!
3. Weak Cash Controls
Cash flow problems are one of the main reasons SMEs fail, even when they appear profitable on paper. Having strong debtors and payment controls in place protects your cash. Quick invoicing and efficient debt collection systems ensure cash continues to flow into the business.
Regularly reviewing debtors and their aging reports helps avoid the risk of selling to businesses that may ultimately be unable to pay.
4. Lack of Proper Accounting Systems
Investing in accounting software like QuickBooks or Xero can automate invoicing, expense tracking, banking, and financial reporting. It can be integrated with custom business systems to streamline processes, boost efficiency, reduce manual errors, and help you stay proactive rather than reactive.
5. Not Reviewing Expenses Regularly
Scheduling regular reviews of business expenses is critical for identifying unnecessary costs. Additionally, these reviews are a great way to build strong relationships between finance and the business, which benefits everyone.
6. Over-reliance on a Single Vendor
Using a single vendor can reduce costs through concentrated volume pricing. However, it also increases the risk of supply chain disruptions, which may result in higher costs or lost business. Diversifying vendor relationships helps reduce this risk.
Just as you would regularly assess the financial health of credit customers, you should evaluate your suppliers' financial stability to reduce supply chain risks.
7. Failing to Invest in Professional Support
Investing in a portfolio Finance Director (FD) can help avoid many of these costly mistakes. A good FD can streamline systems and processes, free up staff to focus on core areas of the business, help secure grants for investment, and ensure everyone in the company has the financial information they need to perform their roles effectively.
If your business—or someone you know—needs help avoiding financial mistakes, we can assist. At Hale Portfolio, we specialise in offering financial clarity, efficiency, and insight through flexible, part-time finance director services and bookkeeping solutions.
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