Many businesses don’t close due to a lack of customers, but rather because they don’t know how to manage their cash to avoid financial problems. Have you ever stopped to think about all the financial mistakes that could be affecting your business without you realizing it?
The truth is that financial management is often penalized by small, silent errors that accumulate over time. Thus, little by little, this erosion of companies’ financial health compromises their viability, as well as their credibility.
In this article, we’ll present the six most common financial mistakes that may already be affecting your company, and some tips to avoid them.
1. Mixing personal and business accounts
This is probably one of the most common financial mistakes among sole proprietors or partners in small businesses.
It may seem like a harmless oversight, especially when the company is still in its early stages. However, over time, this jumbled accounting becomes confusing and unclear, creating a fog that makes it difficult to control business expenses.
Without a clear separation of accounts, it will undoubtedly be more difficult:
- Control the treasury;
- Analyze the profitability of the business;
- Make financial and strategic decisions based on the company’s balance sheet.
Furthermore, it’s also important to consider the potential legal and tax implications associated with mixing accounts. Deducting expenses unrelated to the company’s activities, for example, is among the most serious financial errors , as it can result in fines or even audits by the Tax Authority (AT).
How to avoid this error in financial management ?
Never use the company’s exclusive bank account. In fact, the law prohibits this very misuse of the company account. Article 63.º-C of the General Tax Law clarifies that companies must have at least one bank account “through which payments and receipts related to the business activity carried out must be exclusively processed.”
Additionally, if possible, use management software or even a simple Excel spreadsheet to categorize expenses and track transactions. Whenever necessary, seek the support of a financial consultant for companies .
2. Not controlling cash flow rigorously
Many companies only pay attention to their bank balance as an indicator of their financial health. However, despite generating revenue, they may run out of liquidity to meet their obligations, which is another major corporate financial mistake .
In fact, this is actually one of the most common mistakes in financial management and can even lead to delays in salary payments or payments to suppliers.
How to control cash flow?
Using monthly projections proves to be a simple (but effective) strategy for anticipating critical periods, such as tax payment deadlines.
Strict control of cash flow in companies will allow timely action, protecting the stability of your business.
3. Lack of business budget planning
Did you know that USA micro and small business owners have some of the highest levels of financial literacy among the 14 countries analyzed by the OECD? Yet, despite this positive result, many small and medium-sized enterprises (SMEs) continue to make financial mistakes , such as failing to develop an annual budget plan.
Without a budget, it is impossible to detect deviations, anticipate financing needs, or make informed strategic management decisions.
How to make a budget plan?
One of the main tips for improving company finances is to create a realistic annual budget based on your business’s history and goals.
Don’t forget to also include revenue and expense estimates, as this is the only way your company can prepare for unforeseen events.
4. Underestimating fixed and variable costs
It’s not always easy to understand all the costs a company incurs. However, you should never underestimate recurring or variable expenses, even the smallest ones. Doing so is also one of the biggest financial mistakes companies can make.
Rent, salaries, service subscriptions, and utility bills , for example, are expenses that can easily go unnoticed. However, they accumulate significant costs over time if you don’t pay attention to them.
How to control company costs ?
Good financial management practices include a detailed analysis of the company’s cost structure. First, identify and distinguish between your fixed and variable costs.
By placing this key data in an easy-to-reference document, you’ll be able to update your analysis frequently, which is essential, especially during times of restructuring.
5. Ignoring crucial financial indicators
Some companies make management decisions based solely on account balances or monthly sales. However, taken alone, these data reveal little about the business’s health.
In fact, many people often forget some key financial indicators, which is one of the financial mistakes that will prevent any manager from understanding whether the company is truly growing profitably and sustainably.
Therefore, many businesses face difficulties, not due to a lack of activity, but due to a lack of continuous and rigorous analysis.
What essential indicators should you analyze ?
Among the most important indicators for assessing a company’s financial health , the following stand out:
- Return on investment (ROI);
- Earnings before interest, taxes, depreciation and amortization (EBITDA);
- Profit margin;
- Breakeven ;
- Debt level;
- Cash flow variation .
6. Not asking for help in time
Financial management of SMEs often falls to the manager, who, between operational tasks and strategic decisions, tends not to ask for help.
Only when financial problems (such as late payments, lack of liquidity, and difficulty meeting bank obligations) become visible and urgent is there any proactivity in seeking specialized support to deal with these common mistakes in business management.
However, remember: correcting financial mistakes is always much more difficult (and more expensive) than preventing them in advance.
What can you do to avoid further financial mistakes ?
Don’t wait for a crisis to seek expert support. A financial advisor will help you identify risks, improve processes, and plan appropriately, based on rigorous data.
Even in small businesses, the return on this support is often immediate.