Five mistakes often made by early stage and emerging growth companies:
Cash Flow
Business failure is often attributed to poor management. Poor cash management is probably the most frequent stumbling block for entrepreneurs. Understanding the basic concepts of cash flow will help you plan for the unforeseen eventualities that nearly every business faces.
Forecasting
A carefully prepared financial forecasting should provide insight into what might happen in the future. The forecast should include not only a P&L but a Balance Sheet and Cash Flow for 3 years. It is important to check cash flow from operations with net income to assess the quality of a firm’s financial statements. Profitability shortfalls that have been covered through business segment and asset sales or stretching out depreciation schedules become apparent in a forecast as the firm’s ability to generate cash flow diminishes.
Accounting processes and reporting systems
As you improve the accounting processes, system and process controls, around transactions improve. Accounting system controls are procedures that attempt to limit the possibility of a transaction to be manipulated. It can also minimize errors. The result of improving accounting process controls is a reporting system that reports financial results with a higher level of integrity and reliability.
Contractual and procurement processes
Many early stage companies are so anxious to generate revenues that getting sales at any price is the mantra. These sales contracts if not prepared properly can contain land mines that can affect everything from revenue recognition to future profitability.
Procurement of goods and services is another area where careful review of long term contracts needs to be considered. Poorly negotiated contracts can severely limit profitability.
Banking and investor relations
Banking and investor relationships are critical to the success or failure of an organization. Often time’s management is of the belief that the only news their bank or investor is interested in, is good news. Although good news is the preferred message, the truth far and away is the only message that should be communicated. Regular communication with your bank and major investor is also critical. It is needed most when times get tough. The ability to influence these stakeholders is critical.
