common financial mistakes how to avoid the pitfalls that trip up most business owners
TRANSCRIPT
COMMON FINANCIAL MISTAKESHow to Avoid the Pitfalls that Trip Up Most Business Owners
© 2009 Owl Bookkeeping and CFO Services
Learn from Someone Else’s Mistakes
“All of us can succeed in business, if we can learn from experience, and realize that it doesn’t have to be our own.”
Joe Francis
© 2009 Owl Bookkeeping and CFO Services
Mistake 1: Assuming the CFO Knows it All
Business owner has ultimate responsibility for financial health of the company
Most business failures can be traced to poor management resulting from lack of knowledge Most common cause: poor management of
financial activities (32% of all failures)
© 2009 Owl Bookkeeping and CFO Services
Mistake 2: Not Understanding the Business Model
Working hard and still losing money? Questions to ask:
Do you have an overall pricing philosophy (high, medium or low)? If low, you may need to re-think!
When setting prices, do you take all of your operating costs into account, including your own salary?
What are your competitors charging, and what do they offer for that price?
Do you have specific tasks or customers that are barely profitable for you, or that may evencost you money?
© 2009 Owl Bookkeeping and CFO Services
Mistake 3: Not Having a Plan
No budget = no plan Forces you out of day-to-day details to look
strategically at your business Take stock of where you’re at and set goals
for where you want to be Without a formal tool that nudges you to
action, it will likely never get done
© 2009 Owl Bookkeeping and CFO Services
Excuses that Don’t Fly
“Budgets are too confining. I can’t stick with my initial estimates for 12 months!”
“I won’t be able to react as flexibly to an unforeseen crisis if I have a budget.”
“The budgeting process is too complicated and time consuming.”
“Things change too quickly in my industry for me to commit to a budget.”
© 2009 Owl Bookkeeping and CFO Services
Mistake 4: Being Unwilling to Leverage Yourself
At least some debt is desirable Leverage -- a profitable company with debt
will earn far more than it would without it With tax considerations, debt is nearly
always cheaper than equity
© 2009 Owl Bookkeeping and CFO Services
Mistake 4.5: Leveraging Yourselftoo Far
Don’t hyperleverage yourself All debt is not created equal
Tailor every detail of your loans' terms to fit your future cash flows and cash needs
Debt doesn’t doesn't work its magic all by itself You have to be able to use the borrowed
money in your business to create returns that are greater than the aftertax cost of your debt
© 2009 Owl Bookkeeping and CFO Services
Mistake 5: Being Unwilling to Part with a Poorly Performing Employee
Outgrowing your start-up staff Sisters, neighbors, friends and kids
Holding on too long does a disservice to your company and the employee
© 2009 Owl Bookkeeping and CFO Services
Mistake 6: Trusting Too Much
Small businesses (100 or fewer employees) are most vulnerable to employee fraud
An average fraud scheme against a small business causes $127,500 in losses
© 2009 Owl Bookkeeping and CFO Services
Best Practices for Preventing Fraud
Let them know somebody is watching Have a hotline available for tips Segregate cash related functions Implement active oversight
Owner should always get an unopened bank statement and review all canceled checks
© 2009 Owl Bookkeeping and CFO Services
Mistake 7: Not Managing Cash Flow
Most companies are too lax about getting paid in a timely manner Letting payments string out 60, 90 or even 120 days is
like lending that money to a customer, usually for free A $10 million dollar company shortening the average
collection time by just five days frees up $137,000
The longer you let delinquent accounts sit, the less likely you will collect on them 27% of accounts three months past due will never be
collected That figure jumps to 44% after six months and 75% after
a year
© 2009 Owl Bookkeeping and CFO Services
Mistake 8: Chasing Shiny Objects
Shiny Object Syndrome ADHD Short Attention Spans
Entrepreneurial Traits for Better and Worse Curious Minds that search relentlessly for
alternatives Can change direction on a dime
© 2009 Owl Bookkeeping and CFO Services
Shiny Object Syndrome: How do You Know When It’s Gotten Out of Hand?
Sales are falling Bank account is shrinking Gross profit margins are falling Employees have lost enthusiasm You have a niggling feeling. And there’s
a hush around you.
© 2009 Owl Bookkeeping and CFO Services
Boiling it Down to the Basics
Do you know how to decipher the three reports every business owner must review monthly? Balance Sheet, Income Statement and Cash
Flow Do you know how those figures tie to the
three bottom lines of your business? Net Profit, Operating Cash Flow and Return
on Assets
Stephanie Laitala • 612.816.6007 • [email protected]
Questions
© 2008 Owl Bookkeeping and CFO Services www.owlbookkeepingandcfo.com