What are the biggest financial mistakes small companies make? (Quora)

(This article first appeared on Quora Germany. )

Having spent the last 20 years working on the subject of finance in all its forms and in companies of every size – and having made plenty of financial mistakes myself in the process – I will try to set out my most important points here. (Sorry if this gets a bit long)

No support from a tax adviser (to save costs)

Choose a tax adviser right when you found the company and discuss the planned development of the business with them. That does not have to be expensive; especially at the beginning, support can also be provided on a quarterly basis.

No documentation, or imprecise documentation, of important documents

This starts with properly filing all incorporation documents, tax office papers and so on. These documents are an important part of a company and will be needed again and again in future (for example for grant applications, financing rounds and a later exit). It is best to set up an admin folder on Box or Dropbox and file the documents there systematically.

Chaos with receipts

As ridiculous as it sounds: get a date stamp and stamp every receipt, check it and send it on for payment. Then note the payment on the stamp accordingly. Nothing can be more frustrating than a pile of invoices with no clear status. Fortunately there are now many companies that help with this (for example Fastbill, Billomat, Candis, Chillbill, etc.). – It also saves you the stamp 🙂

No clear responsibility for financial management

Someone should be responsible for the finances. That starts with regularly checking the bank accounts, verifying invoices, clarifying matters with the tax adviser, and so on.

Dismissing finance as a tiresome subject

Regard finance and figures as your friends. Sounds esoteric, but it is not. At the end of the day, the truth is in the bank account. Decisions, from strategy to tactics, are reflected in money. The earlier you start to understand the connections and to plan, the more focused and easier entrepreneurial decisions become.

Seeing the financial plan purely as an instrument for outsiders

Tomasz Tunguz once said that the point of the financial plan is not accuracy, but rather that it should show the direction of the company. In that sense, it is never too early for a financial plan. Even if it is only 5 figures. Write them down and then develop a plan for how these goals can be reached. And start with a cash flow plan.

Invoices are to be paid on the due date. Full stop. If not, get in touch with the supplier, explain your position and agree a new due date. Why? The company’s creditworthiness, and with it the way it is perceived externally, is at stake. Mistakes in this area take a very long time to put right. It gets even more brutal when the authorities are involved. Late payment in this area very quickly leads to an insolvency petition. No joke.

Treating employees as financial comrades-in-arms

As important as the team spirit is, when it comes to finance a different way of looking at things applies. There are employees and there are external consultants. The following approach is popular: we are all working on the same great project and somehow we will sort out the pay. The focus is on the available “salary”, i.e. net earnings. That quickly brings you to the subject of evading social security contributions. There is nothing more brutal than an audit of contributions. When it comes to staff in particular, you should therefore seek close coordination with your tax adviser. One of my favourite topics is the employment of interns and “freelance” staff in start-ups. In my view that is an extremely fine line. There are precise rules on when a worker counts as an employee of the company, and they are also applied very strictly and then enforced.

That brings me quickly to the last point.

Liabilities are underestimated

As a managing director you are subject to precise liability rules. There is no joking about this either. In small companies and start-ups in particular, people like to play it down. Robin Dechant has already given a few pithy examples here. What makes matters worse in start-ups above all are the sometimes “peculiar” forms of organisation. There are chairmen, angels, investors with masses of experience, CEOs, COOs, etc. The liability discussed here applies only to those who are also entered in the commercial register as managing directors. So beware of the great tips from chairmen, angels and the like. At the end of the day it is the decision – and the liability – of the registered managing directors.

All in all this now sounds a little intimidating. But it is not. In my view it is about acknowledging finance as a subject in its own right, setting it up and running it properly, and relying on external specialists as little as possible. Taken together, that does not then take up much time.

Here is the original question on Quora

Credits: Photo by NeONBRAND on Unsplash