7 Critical Business Financing Mistakes To Avoid

Business finance is essential for every company whether it is long-term finance (5 years to 30 years) or small term finance (months, weeks, and days). Financing and money is necessarily a limited resource, which is the prime matter to any irregularities and fluctuation due to fundamental principles of demand and supply. This refers to the fact that, finance may get excess or may be depreciated for the business concerns. The excess finance will lower the price and shortage can raise price for the resource.

When the demand for the resource is decreased, the price will reduce and the availability will increase. The excess resources will relatively be easy for the buyer or receiver to get comparatively low price. During this period, the buyer does some mistakes, this leads to loss for the buyer without adequate business policy.

What Are the Common Mistakes Committed Under Business Financing?

No Monthly Bookkeeping

Despite the scale and size of every business needs, business finance requires the factor to have proper bookkeeping. Incorrect bookkeeping will create all kind of issues in business decision, planning, and cash flow. These issues will reduce the flow of the resource and decrease the value of profit. Therefore, it is better to maintain proper bookkeeping to get accurate information about the trade.

No Projected Cash Flow

Inaccurate book keeping will create lot of problem. If you are not projected with the cash flow then you can’t know where your resource is going. When you are not having proper book keeping score, this tends to stay further away from your target. Then you need to wait for months to recover.

Inadequate Working Capital

When you are not updated with record, this may affect the working capital of the business. This will reduce the working capital for proper operation of the business and then it affects the entire trading activity of the business. That’s why you need to maintain accurate records that will forecast cash flow for your further business expansion.

Poor Payment Management

Unless you have accurate bookkeeping, working capital and forecasting in perfect place, you are likely going to have management problems related to cash. This will make difference in the payment and that will become due. This will further create financial crisis for the business.

No Recorded Profitability

For new business enterprises, it is better to have a fast and possible profit in the financing point because the lenders need at least a year of profitable statement of finance. This shows the business strength and stability to the lenders. It is important for the existing business to maintain proper profitable record to obtain additional financing facility. The measurement of the stability to repay the amount depends on the profit of the organization that influences the lender to lend finance. However, many companies lack in showing proper profit statement.

No Financing Strategy

The financing strategy is very important for every business concern to have continuous cash flows for business working process.

  • If the business works with lack of financial strategy, it will affect the present and future cash flow of the business.
  • No financial strategy will affect on debt repayment schedule
  • Without financial strategy, it is difficult to address unique business needs and unplanned requirement.
  • Poor credit management

    There are many credit consequences that differs the payments of both short period and indefinite time. Late imbursement of credits probably leads the business to loss of the amount. The poor credit management will lead to NSF checks that will be a black mark to the business. Therefore, it is important for every business to have proper credit management to run safe business.

    Thus, these are the common mistakes committed under business financing, which should be avoided.

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