Small Business Owners: Avoid These 8 Financial Mistakes


Small Business Owners: Avoid These 8 Financial Mistakes

Financial Reporting plays important and crucial part in every business. A sound Financial Reporting is crucial for both the management and investor; it helps them to take their decision for smooth business flow and development of future growth.Especially when we are a small business, it becomes a challenge for us to manage everything at our own like handling business operations, Sales, Business development, Accounts, Human Resource (HR), Payroll activities and Compliances etc. As the specialized area of an entrepreneur is client acquisition and business development, so most of the times accounting and compliances takes a back seat and ultimately cause wrong Financial Reporting and Analysis. Ultimately Business suffers.

Few of the Financial Reporting mistakes which a small business should avoid to improve their business decision and cater towards growth:

1. Absence of Daily funds Report:
Daily fund report plays very important part of every business and must be a mandatory part of your financial reporting. Through this report only, an entrepreneur can manage his working capital requirement and also can plan for emergency funds requirement. Most of small business fails due to the lack of planned working capital.

2. No Budgeting and Forecasting
Planning is very essential for every business. A sales forecast and expense budget is key step to move the business in a right way. Most of the time, this does not fall in the top agenda in Entrepreneur’s to- do list due to time and budget constraints. This is where most of the businesses fail.Forecasting and Budgeting will provide you a benchmark for your business analysis of variance with actual figures in your Financial Reporting will give you a road map of current business activity.

3. Missing Debtors Ageing
Debtors ageing play a vital role in your financial reporting. Through Debtor ageing an Entrepreneurcan know how long it takes to get funds realized from customer and accordingly he can plan his funds position. Getting paid is crucial to your business, and overdue payments are detrimental to the financial position of the business. Follow up with Debtors is more convenient and in timely manner with Debtors Ageing.

4. Lack of Creditors analysis
Through this report you will get to know how much you owe your supplier at any point of time.This analysis indicates which supplier must be paid first to avoid credit or supply issue or interest factor if any. This will impact credibility of a business in long run.

5. Lack of Ratio Analysis
Through ratios one can easily communicate the preferred information to the concerned persons in a more learned manner. Various kinds of ratios help in highlighting the areas which required management’s attention and thereafter corrective action based thereon, ultimately facilitating decision making in a more facilitative manner. Few of the Important Ratios are as below:

  • Gross Profit Ration
  • EBITDA %
  • Net Profit Ratio
  • Receivables and Payable Aging Ratio
  • Net Working Capital Ratio
  • 6. Non Preview of Short/long term borrowings

A financial reporting should clearly represent Loans and financial obligations due within the company for a specific period. The borrowings comes with a specified interest factor; it is crucial that borrowings are re-paid in that period only, else additional interest factor comes into effect; thereby causing financial losses.

7. Non-control over statutory and compliance tracker
Adhering with meeting timely Statutory Compliances is crucial factor for a small business to grow in long run. Noncompliance will cause lot of mental and financial loss to the business in the form of Interest and Penalty etc.

8. Ignorance over Analysis of expenditures
A financial reporting should include a percentage (%) comparison of expenses like Salary cost, administrative cost/ other overheads with total cost as well Sales in a company in a period. This will help in controlling over the actual expenditures and cutting on the cost centers.Most of the time, entrepreneurs ignore the importance of having in depth and detailed working and analyses of costing of their Product. A deep analysis of the same helps in improvising the margin involve in a particular product.