Don’t make these 3 fatal business finance mistakes
When you’re running a start-up or SME, you’ve got your hands full. Every day there’s a thousand things that demand your attention as you strive to build your brand and bring your vision to life. It can be hard to find time to focus on finance, especially if it’s not your area of expertise.
But the fact is that cash in your bank – or lack of it – is what will make or break your business. So if you want to achieve lasting success, it’s crucial that you don’t make these 3 fatal business finance mistakes.
Assuming your bank will give you a loan
Business finance can be surprisingly tricky to secure. Even if you have an established long-term relationship with your bank, the moment you give up your day job to set up on your own, everything changes.
Most banks won’t lend to a small business unless you have a well-established (i.e. two years) trading record, regular profits and convincing financial projections – not to mention assets to secure the loan. Even getting a personal loan or a mortgage to use as seed capital can be tricky if you no longer have regular employment income.
There’s always the fintech market, of course, but even the most risk-tolerant of alternative lenders will expect to see evidence of income before lending to a new business. Shaun McGowan from Australia's #1 business loans site Lend.com.au says “Most fintech lenders want you to have been in business for at least 12 months and have $20,000 a month in revenue.
If your plans for establishing and expanding your business involve external funding, you’ll need to have a solid financial strategy from the outset. You may need to consider approaching an angel investor, or pursuing alternatives such as crowd-sourcing or peer-to-peer lending in order to get the funds you need to get your business off the ground.
Most loan products take a fair amount of time to organise, so be sure to allow for that in your business plans.
The Banks So No
If the funds are needed fast and the bank has let the client down, that’s where HomeSec comes in. HomeSec business finance advance the funds, and by the next day the refinance process begins. So HomeSec are like Bridging Finance for Business.
The short term business loan product offer by HomeSec can genuinely have the loan settled within 24 hours. Whilst it’s a short term loan (a short term fix if you like), it doesn’t require financials, or trading history, and bad credit history and arrears are ok. The only requirements are real estate security to secure the loan, a genuine business purpose on which the funds will be used for, and an anticipated Exit Strategy. This is often refinance of the security property.
Taking your eye off your finances
No news is good news, right? Unfortunately, when it comes to business finance, that’s absolutely not the case. Unless you pay close attention to your financial performance and regularly analyse every part of your business, you could be heading headlong towards disaster.
Without accurate, detailed information about what’s happening in your business, how can you make informed decisions about where to keep to spending your money? You could be investing in stock that’s simply sitting on the shelves, or pouring cash into marketing campaigns that are merely driving up your customer acquisition costs.
Meanwhile, even if the numbers on your P&L look healthy, your cash flow could be suffering if your income is seasonal or your customers aren’t paying on time.
You (or your financial advisors) should be conducting a thorough financial review every month, and running a rolling cash flow projection so that you can spot potential issues and take action in time.
Focusing on turnover instead of profit
Just because you’re bringing in cash, it doesn’t mean you’re making money – especially if your business is growing fast. Increased turnover LOOKS like great news, but far too many businesses go spectacularly bust on the back of rapid sales growth.
If you have to invest in extra staff, materials or equipment in order to service extra customers, the additional expenses can far exceed your earnings. And even profitable growth can wipe out your working capital and leave you in crisis if you have to wait too long to reap the financial rewards.
Instead of monitoring your turnover, focus on your bottom line profits – and even more importantly, your cash flow. After all, it’s only cold hard cash that will keep your business afloat.