Financial mistakes any business can make and how to prevent them

Let’s be honest: we all make mistakes, it is an inalienable part of life. Sometimes it’s trivial, day-to-day things, like buying wrong-size shoes online or forgetting to send a report at work. Of course, companies are not exempt from making business mistakes either. Some of these blunders are common, which allows other companies to learn how to avoid them.

That is why Genome’s team decided to list some of the most frequent financial mistakes businesses can face, as well as the ways to prevent them. 

Short-term and long-term planning is crucial

Lack of planning is a common startup mistake, but it is relevant to any business. You don’t want to lack funds for essential operations just because you spent too much on unplanned expenses. And this is just one example, as pretty much every business step and process must be carefully accounted for in your budget. 

Solution: Financial planning and budgeting must be your top priorities to prevent this financial mistake. It will help if you clearly differentiate between your short-term financial goals, yearly budgeting, future prospects, and also have plans B and C in case of emergencies (more on that later). Remember to set realistic sales goals and track Key Performance Indicators to adjust your plans accordingly.

Keep an eye on the cash flow

Another frequent money mistake arises when companies aren’t aware of all the components of their cash flow. As a rule, the cash inflows and outflows are divided into three types: from operations, financing, and investing. Neglecting the management of these can lead to financial losses and business failure. For instance, if you don’t oversee your operational expenses (the day-to-day company operations), you may miss the moment when your sales income barely covers your spending. You can find out more about cash flow in this article. 

Solution: To avoid this financial mistake, analyzing and managing your cash flow closely is important. The easiest way to do so is by tracking cash flow statements. The statement will also be helpful in showing you the pattern of your company’s growth or decline, so you can plan your budgeting operations accordingly and optimize your working capital. Keep all the financial records, no matter how old they are. Also, make sure not to accumulate excessive debt – deal with loans as soon as possible. 

Mind your investments

Making investments to grow your business is a common, healthy practice. However, investing is a severe, sensitive matter and grounds for many financial mistakes. After all, you need to consider multiple factors that can result in money loss, such as market fluctuations, economic downturns, company performance, and changes in interest rates. Not to mention that investment scams are, unfortunately, very prevalent. In the US alone, investors lost over $4 billion to investment fraud in 2022. 

Solution: Be cautious about what you invest in, and thoroughly research every investment opportunity. Don’t neglect advice from your financial team. 

Work smarter

Budgeting is not the only thing that requires planning. As an entrepreneur, you need to have an in-depth understanding of what works out best for your business. Meaning which services it requires, how big or small a department should be to sustain itself, etc. 

For instance, a startup company wants to translate its website into 5 different languages and makes a rash decision – hires 5 employees to handle the translation. However, the business should have considered using contractors or even specialized services to translate the website and that it will be cheaper than paying monthly salaries. Remember, an amalgamation of such quick and premature decisions can lead to business failure.

Solution: There are a couple of things you can do to prevent this financial mistake. Never make any business decisions hastily. Always research all the possibilities and read about other companies’ experiences and what works for them. Check for modern business solutions for the maintenance of the company’s infrastructure and services. Keep good relations with contractors and suppliers – long-term partnerships can earn you discounts.  

Always be prepared for the worst

You can be on top of your cash flow, financial planning, and budgeting and think everything is going well. Unfortunately, many things in life are unpredictable. Natural disasters, wars, economic crises – all these can have very detrimental effects on your company. Not to mention smaller-scale misfortunes: for instance, one of your branches or stores can get robbed, one of the company’s investors can go broke, etc.

Solution: You need a risk management department inside your company. Or, you can request help from notable risk management agencies. You should also have enough funds saved for a rainy day. 

Looking for a business account? Genome can help

Partnering with a reliable financial institution can help you prevent some of the financial mistakes. Genome is an electronic money institution that offers business and merchant accounts* online! We are licensed and supervised by the Bank of Lithuania and have all the tools in place for the security of your data and funds. 

With us, you can access money transfers, merchant services*, batch payments, and extensive reports on all your financial operations. Find out more on our website. 

*Please note that Genome’s merchant services have been temporarily unavailable since September 2024.

FAQ

What are the 5 biggest financial mistakes?

The Genome’s team has described what, in our opinion, are five of the most devastating financial mistakes for companies. These are the mismanagement of the cash flow, poor financial planning and budgeting, lack of comprehension of tools and services the company needs, ill-conceived investments, and the lack of cash reserve for a rainy day. The combination of these could potentially lead to entrepreneurship failure. 

What are the mistakes to avoid in business?

Generally, there are many financial mistakes your company can make. However, a lot of them step from two key factors: lack of planning (be it your operations, finances, cash flow management, etc.) and rash decision-making.

What are some common money management mistakes?

The most frequent mistake is neglecting the cash flow metrics, as well as excessive debt accumulation.