4 Money Myths You Should Avoid At All Costs
The majority of businesses end up bankrupt and failing is because of poor cash flow management. The inability to manage costs, insufficient capital, poor business planning, and just sloppy bookkeeping can pull any business venture to crash and burn.
Many entrepreneurs mistakenly assume that because their business is turning a profit, their cash flow is good. This isn’t necessarily true, and a competent business accountant will tell you that’s actually a common misconception. Avoiding myths like this can help save a business if only people are aware of them. Here are some of those misconceptions that every business owner should know about.
Myth #1: Any Customer is Good for Business
A good entrepreneur values every customer that does business with them. However, that doesn’t mean that just about any customer you encounter is good for your business.
For example, if you invoice a customer for $1,000 worth of SEO services then spend months chasing payment from them, you haven’t really earned anything from that customer. If you look at some of the oldest overdue debtors in your receivables report, that could be a significant amount of money that never made it to you. These kinds of customers aren’t worth your time and effort and would only pull your business down. For delinquent payers, you could add late payment fees to your contracts or accept cash upfront. If they’re still nothing but a source of headache, then maybe it’s time to end your business relationship with them.
Myth #2: Discounts Are a Good Way to Boost Sales
You know all too well that consumers like to get a good deal on just about anything. While a discount is an effective tool to drive more people to your business, those extra customers must compensate for the loss in the profitability of each unit you sell. Otherwise, you're only hurting your revenue instead of improving it. Discounts are great, but you need to use them strategically and make sure you’re not incurring losses instead of gains. Perpetually discounting can set a precedent in the market that actually drives down the value of your business.
Myth #3: Profitability Equates to Good Cash Flow
If you’re earning a profit, in theory, you should be building more cash. In a sense, that’s true, but you have to consider the delay between delivering a product or service and when the customer actually pays you. Too much delay between the two will leave you gasping for air because of cash-flow problems. There are other things that influence your cash flow, such as expenses. Keep an eye on those things, as they can easily cripple your business.
Myth #4: Small Businesses Don’t Need an Accountant
You’ve invested in accounting software, which eliminates the need for hiring accountants, right? Wrong. If you’re still spending a significant amount of time manually inputting and extracting data, then you only cost your business a lot, not just money.
Your focus as a business owner is to grow your business, find new customers, and develop new products that add value to your company. In your case, time is money. By spending too much time tinkering with your accounting software and not doing anything valuable to the organisation’s growth, you’re already on your way to failure. A business accountant can take a lot off your plate and save you a lot of time, which you can spend on more meaningful tasks.
How you manage your cash flow can spell the difference between success and failure for your business. You need to make sure that whatever beliefs you have about managing your cash flow and finances should always be for the good of your business. Don’t be fooled by any of these myths, and you’ll be good to go.
Whether you’re a startup or looking to expand your business, New Wave Accounting is here to help you reach your goals. We are business accountants in Gold Coast, providing an effective growth strategy to help businesses grow. Contact us today for more information on our accounting services.