By Rich Bond
There are multiple ways you can inflict damage on your business.
1. Improper costing is one of most common deadly mistakes companies can make. If you overestimate your costs, then you can’t sell your products because they will be too expensive. If you underestimate your costs, you will find that your profits have evaporated.
2. Not understanding customer fulfillment and inventory. Most people view inventory as an asset. But its true value lies in giving you the ability to meet customer demand.
3. Inventory is a huge use of cash, which you need to minimize so that you have more working capital to spend on sales and marketing programs. How quickly you can turn your inventory over will affect your cash flow.
4. Losing track of interest payments. While you may need to use a line of credit to fund operations, the interest rates you pay can be a hidden, debilitating cost, sucking up your cash.
5. Placing emphasis on sales over profit. You may generate a lot of sales from certain customers, but fulfilling their orders could cost you more than you are generating in revenue.
6. Not monitoring receivables closely enough. A sale is NOT really a sale until the customer pays. The longer an invoice remains unpaid, the more your cash flow will be squeezed. Big companies are often very slow to pay. Often the longer an invoice is unpaid, the more likely it is never to be collected.
7. Failing to take advantage of opportunities to raise prices or add additional service offerings. A 1% increase in prices yields a 12.3% increase in profit, according to one study by a major accounting firm.
How can you avoid these 7 mistakes that can put your business underwater?
A good financial manager, CFO, or Controller can help you understand what the numbers are saying and why they are important. They can analyze what’s happening and work with you to free up cash, grow the business, and be more profitable.