In today’s business world, getting the basics right is essential; in fact, it’s far more than that, in the bluntest of terms, it’s a matter of sink or swim. What may come as a surprise to some people is that mistakes are made across the board – from newcomers to seasoned business professionals.
In this article, we are going to examine what I believe are three of the top mistakes made by private business owners, and to finish, we’ll outline the answer for many of the businesses making these mistakes.
Mistake #1: There Is No Cash Forecast
The first and most prominent mistake made by business owners is the lack of a cash flow forecast.
Without a forecast, there is no transparency of when and where they will need to apply their cash over the coming quarter, and it becomes incredibly challenging to identify any incoming cash flow over the same period of time.
I have found that for many companies, this creates an uncertainty in daily decision making, and there will never be a reliable way of determining when cash will be received or when they will need to spend it.
Mistake #2: Bankers Are Kept At A Distance
In my experience, I have seen that many bankers are often kept at arm’s length, rather than bringing them close to the bust of the business.
Companies often ignore how beneficial it could be to bring their banker into the business and allow them to be part of the planning and growth strategies. While there are certain connotations attributed to bankers, you may actually be shocked to find just how integral to the success of your business you banker could be.
Mistake # 3: They Cannot Identify Key Performance Indicators
If there is one thing that drives a business’s success, it’s seeing some positive figures reflected in the checking account. Most business owners will spend so much time concentrating on profitability and the bank balance, they tend to ignore other equally or more important information.
Business owners should instead be focusing on where that profit has come from, why their bank balance is looking so healthy (or not), and what is truly driving their business to succeed.
Concluding With The Common Ground
One thing all businesses have in common is that they all have cycles. Each and every business I come across have months of high profit and other months that can be quite the opposite.
While the businesses have these cycles, owners have not established ways of predicting their months of better income, or months of shortfall. Without this, they can find it difficult to cover their months of shortfall and are left with an illusion that their company is not as successful as it may be.
A company may not be able to change its profitability cycle, but they can improve their ability to understand what they will need to do to make the thin and fat months support each other better.
One of the primary things I do when going into a business, whether it’s a manufacturing business or one of service, is to try to get a deep understanding of the business cycles they have. I also make it my job to determine the level of comprehension of the cycle and whether or not there is an awareness of precisely how much needs to be set aside, and when.
The majority of the time, I am led to the same conclusion: most pre-existing forecasting is that of guesswork. At this point, I will work with the client to piece together a plan that works for them, and this leaves them feeling more confident entering what are usually periods of doubt.