Running a business requires a complex mix of strategies, effective timing, and doing everything it takes (lawfully) to remain relevant. Admittedly, the most critical part of operating a business is to have appreciable financial knowledge of how things work in the business space. It is an essential skill needed to steer your company away from money constraints cleverly. However, KPMG reports that as of 2020, one in five businesses in the UK was in dire financial distress due to certain mistakes committed in day-to-day operations. Below is a discussion on a few of them to avoid.
1. Not using financial professionals
According to Statista, the year 2020 recorded 1.1 million employed finance professionals in the UK alone. This is indicative of the presence of skilled professionals who offer accountancy and a broad range of services in the finance domain. Understandably, you may want to cut out excess hiring because you intend to operate on a budget. However, going down this road can be more costly than you ever imagined.
The reason is, when you fail to adopt proper book-keeping, it will affect financial record keeping in the long term. Without sound financials, there will be adverse ripple effects on business. For example, you will be in a better position when you hire an establishment to give expert advice on vat return services. You must understand that running a business can be costly if you fail to follow procedures and processes. A professional can make a world of difference where your company is concerned.
2. Not diversifying revenue streams
Every business thrives on cash inflows to remain operational. It explains why when companies fail to break even or do not make profits, they collapse if timely measures are not taken. Speaking of steps, your ability to diversify revenue streams will increase your company’s chances of staying in business when the market takes a dip. Indeed, the stability of the business market depends on several economic factors.
Sometimes, it can be national or global factors, but more experienced companies can sail the storms because of their long-standing diversification strategies. For example, the COVID pandemic wreaked havoc on businesses without well-established income streams. It’s akin to the saying, ‘keeping your eggs in one basket.’ There is a great need to plan for any eventuality, knowing very well that business can record a downturn at any time. This leads to the next point.
3. Failure to set up an emergency fund for your business
A business emergency fund is a safety net for your establishment. It is no different from keeping a stash of emergency cash for yourself to attend to unforeseen events. As already known, an emergency fund should never be touched unless the crucial moment makes it mandatory to do so. For this reason, avoid using these reserved liquid savings accounts to run your day-to-day business.
4. Failing to separate business and personal bank accounts
According to bdaily.co.uk, a banking survey conducted from 2018 to 2020 revealed that one in three micro-businesses fail to set up a business account separate from personal use. It represents 30% of small businesses currently operating in the country. There is no further discussion about how risky this is for a company striving to remain relevant for many years.
Last but not least, avoid overspending, planning without long-term considerations, and failing to set up legal structures for your business.
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