3 common financial pitfalls businesses must avoid

Financial pitfalls can be damaging for businesses and most don’t appear until it’s too late. Last year 46% of businesses said they were concerned about their finances, with cash flow being a rising factor. However, this can easily be prevented if you know how to manage your finances correctly.

Even successful businesses in economic hubs such as Liverpool and London can benefit from being aware of how to avoid financial issues. We take a look at some of the most common financial pitfalls in more detail below, including how you can manage them.

Undermining your cash flow

The biggest obstacle to a business’s growth is cash flow. Without a clear understanding as to where money is coming and going, you may find yourself unaware of how much money you have readily available.

Having a poor cash flow could subsequently lead to numerous problems. For starters, you’re unable to pay your suppliers, you may be late on your repayments, and you’ll struggle to purchase new inventory.

Therefore, it’s essential you have a strong system in place for tracking your cash flow, with regular monitoring and analysis to account for any surprises. You should also be aware of when receivables are due to come in, sticking to payment schedules set for your debts and avoiding overpaying on expenses.

Not accounting for one-off expenses

As a business owner, you likely keep track of regular expenses such as rent, payroll, and supplies, but what you may miss are sporadic or singular payments. As a result, you might end up making poor business decisions based on incorrect data. You may even experience cash flow issues that mean you can’t cover your essential expenses.

By missing these payments, you also leave yourself at risk of filing inaccurate tax reports, increasing your risk of penalties and interest. Tax authorities may need to get involved, which is both costly and time-consuming. If you’re not confident in your ability to track each payment accurately, it’s worth enlisting professional accounting services to handle this for you.

Failure to reinvest profits

Running your own business is difficult, especially with there being so much competition. In order to stay afloat and see growth, reinvestment into the business is essential. This will enable you to refine your services, handle market downturns, and improve the experiences of your client base, helping you to maintain that competitive edge.

Failure to reinvest your profits could restrict your growth, limiting capacity for research and development as well as operational capacities. If your competitors are outperforming you in these areas, you risk losing clients and missing out on important business opportunities.