4 Common Finance Management Mistakes SMBs Make and How to Avoid Them
Every business owner makes mistakes at some point. From underselling to not using the right software tools, there are many ways small businesses trip up as they go through growing pains. When it comes to financial process management, even small mistakes can be devastating. So, it’s important to examine and analyze where other businesses faltered so you can avoid making the same mistakes.
Here are some common mistakes small and medium business owners make:
Using spreadsheets for finance
One of the most common mistakes small businesses make is that they think Excel is the silver bullet to all their finance processes. There are so many reasons to love spreadsheets; they are easy to use and cost-effective. But, they aren’t built to handle financial data. Spreadsheet data is riddled with manual errors and inconsistencies, and isn’t designed for collaboration.
It’s crucial to use dedicated software whenever required, especially when it comes to managing finance. These tools can help you generate P/L statements and cash flow reports in a click. Your entire staff can have access to the system, but you control the level of access. The upfront costs are paid back by helping you save time and making your process efficient.
Not having standardized processes
Most finance processes are predictable and can be standardized easily. Take the travel expense reporting, for example. Employees incur expenses on behalf of the company and submit expense reports to their managers. The managers review the expenses, approve the reports, and send them to finance staff for reimbursement. The finance team ensures that the expenses don’t exceed the organizational guidelines and reimburse the employees.
When left unsystematized, this process can be chaotic. Receipts may be lost in a sea of emails, and expense reimbursements can take weeks to get to employees. Every finance process follows a fixed path involving a set of sequential tasks. Defining a workflow and standardizing these processes ensure consistency, faster approvals, and accurate numbers.
It’s quite likely that financial information is shared between different teams in your organization. When they don’t speak to each other, it makes room for unreliable data and inefficiencies and you don’t have the complete picture.
Finance and Sales teams use a lot of common information but usually don’t have the proper channels to share them. When this happens, you can never be sure that your data is up to date and real-time. However, this is not the case when you use integrated solutions. Whenever the data in one system is altered, it reflects across all the other systems that are connected. It eliminates double entries, erroneous data, and unreliability.
Not measuring your financial performance
The only reason many small businesses prepare financial statements like Profit & Loss, Cash Flow, and Balance Sheet is because tax time is close. When you fail to keep track on how well your business is doing, it’s like driving with your eyes closed.
Knowing what works and what doesn’t helps you make the right business decisions, regardless of your size or industry. It’s important to analyze every aspect of your business and fix areas where cash is leaking. Failing to keep track of invoices and expenses can lead to dwindling cash flow, late payments, and unchecked spending.
If you’re a small business owner looking to improve your finance process automation, take Kissflow for a spin. It’s completely customizable to suit your business requirements. Sign up for a free demo.