Why Entrepreneurs Need To Understand Finances?

finance balance Mk184uDuThere are several reasons businesses are bound to fail, but the most common reason is weak financial management, which includes bookkeeping, accounting, cash flow management and raising capital. Most entrepreneurs do not have issues handling daily operations except the business’ financial aspect. Since financial management is considered essential to every business, especially when it comes to its success, entrepreneurs must learn the importance of proper financial management. Entrepreneurs are not required to study for years to become good at financial management. You just need to be keen on determining the factors that can contribute to poor financial management.

The effects of poor financial management on your business:

Most entrepreneurs put more focus on generating more sales for the belief that it is one important aspect that can make your business succeed. While this may be partly true, there are also businesses that fail in spite of generating sales.  There is one reason for bankruptcy and that is because of poor financial management.  

Cash Flow Mismanagement

Proper cash flow management must be observed if you want your business to prosper in the end. The failure to manage your cash flow properly can take a toll on your business as your inability to pay rent, insurance, phone, and so on, can definitely hurt your business in more ways than one. This is why planning ahead pays off because you will be able to foresee problems that arise.  You should know how to negotiate with vendors and customers so you can cover your bills. If there are cash flow gaps, learn to manage them as well. Cash flow gaps happen at some point and this will test your ability in managing cash flow.

Unpaid Taxes

You can run from tax collectors but you can never hide and that is certain. When it comes to paying your taxes, you need to plan ahead because there are instances when your business does not generate the same profits as the previous months. Obtain the skill of timing investments so you can get the most out of your purchases. You can postpone some of your investments for the following year if don’t intend to pay a lot in taxes this year.

Failure To Keep Expenses As Low As Possible

Many entrepreneurs often overlook expenses. Careless spending can lead to bankruptcy as there isn’t enough money left to cover all expenses. It can create a domino effect on your business, deterring you from expanding because you do not have money for making additional investments. Learning the art of cost management is essential as this includes keeping your expenses as low as possible. Your business will be more profitable if you try to look at the aspects that can help your business prosper. When you have enough to cover all expenses, business expansion is not far from happening.

Never take financial management for granted because it is an essential skill that every entrepreneur should master. The financial aspect of your business should not be relied on others because at the end of the day, you will be held responsible for the success of your business.

Andrew Donnelly

Written by : Andrew Donnelly

Andrew Donnelly is a degree qualified accountant and registered tax agent. He is the principal of Brisbane Bookkeepers, which provides bookkeeping services to small businesses in Brisbane and its immediate surrounds.

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