Thought you might be interested in an article Factors That Lead to Financial Distress for a Company and thought I’d share a few points with you here. I’ve found some relevant information here so if I find more, I’ll be sure to pass it on.

Your company can struggle even if you hit your sales goals because of your financial practices. Small-business owners without accounting experience often make common mistakes relating to incorrect pricing, debt service or cash flow management. Understanding the reasons that businesses suffer from money problems helps you take steps to avoid them and deal with any that arise.

Insufficient Accounting Practices

Businesses fail when they don’t expand their bookkeeping activities to include advance accounting techniques. Think of bookkeeping as recording financial activity and accounting as projecting and analyzing the numbers. For example, a general ledger is a bookkeeping document where you record the money you pay out and receive. A budget is an accounting document that projects sales, revenues and expenses, helping you determine your production and overhead costs and project your profits or losses based on different sales volumes. Simply recording your numbers after the fact can lead to financial trouble if you aren’t able to spot trends and takes steps to avoid problems. If you’re not a trained bookkeeper or accountant, hire one to help you create a master budget, balance sheet, cash flow and profit-and-loss statements, overhead and production expense ratios and accounts receivable turnover and aging reports.

Unrealistic Budgeting and Pricing

Creating budgets based on unrealistic sales, revenue and expense projections can lead to financial struggles you might not be able to overcome. It’s not always easy to reduce expenses when sales are low, especially if you’ve committed to contracts based on erroneous budget projections. Incorrect budget assumptions also lead to improper pricing strategies. Create multiple copies of your annual budget to show what will happen at different sales and expense levels so you can plan contingencies to address missed projections. 

If you want to keep reading with any of that content, by all means, click here. Please feel free to contact me on (0429) 011-071 or email at ian@judsonkoman.com.au for any thoughts and perspectives.

To your success,

Ian