Bad financial decisions are a common affair in business; everyone makes it at some point of time. Many of the Start-up companies and small businesses end up in failures largely because of poor financial decisions. Fortunately, awareness of some common financial mistakes by those managing the enterprise can avoid many of these failures. A lot of effort is often put into the daily function of the company, while not enough thought goes into bookkeeping and accounting, which are vital for running a business competently and gainfully. Control over external factors may not always be possible, but keeping away from simple financial mistakes will undoubtedly benefit any business.
Entrepreneur has been in touch with experts in money matters and industry players to find out the common mistakes.
Angsuman Bandyopadhyay is the present President of Eastern Chamber of Commerce and also Director of several companies, member of many other Trade Bodies, Export Agencies and also acted as advisor to various government departments, philanthropic and religious organizations for their Industrial, Educational and Research Projects. He has his own Project & Management Consultancy firm and is instrumental in establishing hundreds of manufacturing, servicing, trading units, other business establishments and service industries including Higher Educational Institutions, Hotels and Health Care Units in India and abroad. His take on common financial mistake-
Failing to Budget - Spending more than earning
Every business must have a budget to be prepared realistically based on the trend and past experience. If you don't have a proper budget, it makes it harder to address financial disasters. A budget helps you decrease or prevent debt, it also helps you build savings in case of emergency. A budget can protect you and it also gives you a road map to reach your financial goals.
Having no emergency funds – don’t spend what you earn
Surprise expenses are always a reality. Having the money to cover them isn't. An emergency fund provides a crucial crutch when things go wrong. For emergency working capital need in case of non receipt of proper on time funds from bank and Financial Institutions or even to look after the emergency break down of plants, equipments, such funds may prove handy at any time.
Using credit as an emergency fund - neglecting your credit report
One of the main reasons to set money aside is that you can build an emergency fund. Many businesses rely on credit funds and lines of credit for emergencies. Once you fall into this habit, it can be costly. Paying interest on your emergencies can lead to more debt later, and it also means that you are less able to handle problems in the future. Your credit report offers information about your financial habits and can also provide you with warning in case of emergency.
Paying too much attention to sensational investing headlines
One of bad financial habits is unfortunately to rely on sensational headlines. If you panic and change your financial plan due to the reports of today, you could miss out on future growth, as well as lock in losses. While you do need to be an informed investor, you shouldn't mistake sensationalism for rational analysis.
N. Chandramouli began his entrepreneurial journey straight after his engineering in 1990. His business experience began with chemicals and went on to stock-broking, banking and exports. His engagement with communication began in 1998 - a business that has obsessively consumed him since then. In the last decade of his career he has promoted 6 different communication companies under the Comniscient Group umbrella. Two other businesses are gold standards in their own sectors; Bluebytes, a news research and analysis company, and Trust Research Advisory, a business efficiency advisory. The unique combination of his engineering background, communication business experience, and his other entrepreneurial exposures, brings an inimitable perspective to communication. His take-
Ignoring cash flow
Good business depends on cash like life depends on blood. The biggest mistake of any business, be it e-commerce or traditional, is to lose sight of this golden rule.
Spending the last buck
Business is about risk and without risk there is no business. However, an entrepreneur can be caught between the light (or hope) at the end of the tunnel syndrome and invest in a passion which may not be having realistic returns over realistic periods. Even good businesses have gone bad due to the long risk curve. No matter how romantic the idea sounds, never spend your last buck behind a business idea and remember for every business that succeeds there are 99 which fail.
If the business is going good, that is the time to diversify. Spend money on necessary things of new business and bootstrap in your next business like you did in your first. Don't sit tight if the boat is moving up with the wave. Build independent not interrelated business baskets to spread risk in different areas. Keep in mind that spreading risk does not mean lowering rewards always
Rohan Bhansali is the Co-founder and Director of Gozoop, India’s largest independent digital agency with presence in India, New York and UAE. Founded in the year 2010, Gozoop currently manages digital for brands like Dell, The Times of India , Asian Paints, Mumbai Indians, ITC, Pidilite, Flipkart, Amazon, Myntra, First Cry, Discovery Channel, Mumbai Mirror, HDFC, TLC, Lipton Ice Tea, Interglobe, Godfrey Phillips, Samsung among others. However Gozoop has already started moving towards mainline and have already secured clients like Mumbai City FC and Kolkatta Knight Riders. In 6 years the company has grown impressively in size with multiple offices and wider range of service offerings. Started with a team of 12 members Gozoop now has a team of more than 150 across 9 cities in India, Dubai and New York. Bhansali is an investment banker turned entrepreneur. With an intense passion for the people side of business, Rohan is best known for cultivating a great work environment at Gozoop, which holds a record for the youngest company to feature on the list of India’s Best Companies to Work For as adjudged by Great Place to Work Institute and Economic Times.
Lack of cash flow kills the show
Bhansali says "I don't know who said it but the most prudent words on business ever quoted are - Sales are Vanity. Profits are Sanity. Cash Flows are Reality. Managing cash flows probably isn't what draws someone into entrepreneurship, but it’s the most crucial part of running a start up. Most start ups shut down not because of lack of profits, but because of lack of cash flows. Nike, a highly profitable company in the 70s almost shut down due to mismanaged cash flows. Imagine what the world would have missed.”
Not asking the right questions
- How much money do we have in the bank?
- How do our receivables compare to our payable?
- By when will a project or business be cash flow accretive?