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

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

(This post first appeared on Quora Germany. )

Having spent the last 20 years dealing with finance in all forms and sizes of business and having made many financial mistakes myself, I'll try to formulate my most important points here. (Sorry if this is a bit longer)

No support by a tax consultant (for cost reasons)

When founding a company, choose a tax advisor right away and discuss the planned development of the company with him or her. This does not have to be expensive; especially at the beginning, support can also be provided on a quarterly basis.

No or inaccurate documentation of important documents

begins with a good filing system for all founding documents, tax office documents, etc. These documents are an important part of a company and will be needed again and again in the future (e.g. for funding applications, financing rounds and a later exit). It is best to set up an admin folder on Box or Dropbox and store the docs there with a system.

Chaos with receipts

As ridiculous as it sounds, get a stamp and stamp every receipt, check it and send it on the payment route. Then record the payment on the stamp accordingly. Nothing can be more frustrating than a stack of invoices without an accurate status. Fortunately, there are now many companies that support this (e.g. Fastbill, Billomat, Candis, Chillbill, etc.). - Saves the stamp too 🙂

No clear responsibility for financial management

Someone should have responsibility for the finances. This starts with the regular control of bank accounts, checking invoices, clarifications with the tax advisor etc.

Dismissing finances as an annoying topic

Consider finances/numbers as your friends. Sounds esoteric, but it's not. At the end of the day, the truth is in the bank account. Decisions, from strategy to tactics, translate into money. The earlier you start to understand and plan, the more focused and easier business decisions become.

Understanding the financial plan as a pure instrument for external parties

Tomasz Tunguz once said that the purpose of the financial plan is not to be accurate, but rather to show the direction of the company. In this sense, it is never too early for a financial plan. Even if it's just five numbers. Write them down and then develop a plan on how to achieve those goals. And start with a cash flow plan.

Overlooking due dates for payments (especially taxes and duties)

Invoice are payable on the due date. Item. If not, contact the supplier and explain your points and agree a new due date. Why? The credit rating of the company and thus the external perception are at stake. Mistakes in this area take a very long time to correct. It gets even more brutal when the authorities are involved. Late payment in this area leads very quickly to an application for insolvency. No kidding.

Viewing employees financially as fellow campaigners

As important as the team idea is, there is a different way of looking at finance in this context. There are employees and external consultants. The following approach is often taken: we all work on the same great project and somehow we manage to get paid. The focus is on the available "salary", i.e. net earnings. This quickly brings us to the subject of tax evasion. There is nothing more brutal than a tax audit. Especially in the case of employees, close coordination with the tax advisor should therefore be sought. One of my favourite topics is the employment of interns and "freelancers" in start-ups. I am of the opinion that this is an extremely fine line. There are precise rules as to when a staff member is considered an employee of the company and these are also very strictly applied and then implemented.

This brings me quickly to the last point.

Liabilities are underestimated

As a managing director, you are subject to precise liability regulations. Here, too, there is no room for error. Especially in small companies and start-ups, this is often talked down. Robin Dechant has already mentioned a few handy examples here. What makes things even more difficult, especially with start-ups, are the "strange" organisational forms that sometimes exist. There are chairmen, angels, investors with a great deal of experience, CEOs, COOs, etc. The liability discussed here only applies to those who are also registered in the company register as managing directors. So, beware of the super tips from the chairmen, angels, etc. At the end of the day, it is the decision and also the liability of the registered directors.

All in all, that sounds a little intimidating. But it is not. In my opinion, it's about recognising the topic of finance as such, setting it up and implementing it properly and using external specialists to the smallest possible extent. All in all, it doesn't take much time.

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Credits: Photo by NeONBRAND on Unsplash