Entrepreneurs are a deeply passionate breed. That’s why they willingly put in long hours and make personal sacrifices to create products and solutions they are proud to sell.
However, part of running a successful business involves managing your business finances well. This can be very different from managing your personal finances, and new and/or young entrepreneurs will unlikely have much experience in this area.
Regardless, you may still think it’s wise to simply bootstrap, figure your way out and save on this cost. Being a first-time entrepreneurs and starting before our 30s, we’ll be the first to admit that it’s easier said than done. Even though we thought we were quite financially aware, we can’t claim to have gotten everything right at the start.
To help other first-time entrepreneurs make better decisions with their company finances, we recently spoke to Tan Wei, the ex-Chief Financial Officer (CFO) of an SGX-listed company. He currently runs a consultancy firm providing business and financial advisory to companies going for an IPO, undertaking M&As and/or restructuring.
In our discussion, Tan Wei shared four common mistakes that he sees many new business owners making, and how these seemingly innocent oversight may come back to bite them later on.
Read Also: 4 Bad Reasons For Wanting To Be An Entrepreneur And Start Your Own Company
#1 Not Separating Personal And Business Finances
New entrepreneurs tend to mix their personal and business expenditure, as well as assets. Tan Wei says this is a common mistake as first-time entrepreneurs may not be able to distinguish their company as a separate entity from themselves.
It’s easy to see why this happens. In the initial phase of business building, many founders bankroll expenses and investments needed by their start-ups out of their own pockets. After the company starts generating revenue and standing on its own, they may fail to separate their personal and business finances.
Not separating our personal and business finances creates more blindsides and prevent us from accessing relevant information on the company’s financial standing and performance. This can lead to entrepreneurs making sub-optimal business decisions.
Similarly, we paid for the initial expenses to set up and run DollarsAndSense out of our own pockets at the start. However, when we decided to turn it into a business, opening a business banking account was a logical step as we had more than one shareholder. This meant that the company’s funds were kept separately and business transactions were done through our business account.
A separate business bank account also provides more functions than what is typically provided on personal bank accounts. For example, a business bank account will give you access to business payment solutions, including PayNow Corporate or PayPal.
Furthermore, you will also be able to tap on digital solutions provided by the business bank accounts you choose. This can include e-invoicing and cash flow management.
Having a business bank account will also allow you to manage other business functions, such as applying for trade financing, and connect you with other digital tools in a single dashboard, including Expensify, MailChimp, Office 365 and more.
For this benefit, there are typically more and heftier fees that you incur for business bank accounts compared to personal bank accounts.
Read Also: [2021 Edition] 4 Best Business Bank Accounts In Singapore For New Business Owners
#2 Not Investing In Software
Not investing early in software is one common way that new businesses try to save on costs. However, Tan Wei points out that many companies eventually spend more time and money over the long-term. Business owners are often overstretched as it is, and you could also use the time saved to grow the business more productively, or simply spend it with your family.
Relying on “old school” style bookkeeping with software like Excel may result in entrepreneurs draining a disproportionate amount of time on manual bookkeeping and incurring greater manpower cost in the long-run. You would also lack the financial data needed to make objective and quick business decisions – which software solutions can provide in real-time.
Payroll is another function that many business owners wish they could alleviate each and every month. Paying salaries and making CPF contributions can be a chore, and depending on the size of your company, take a significant amount of time.
For a start, entrepreneurs can rely on your business bank account for free solutions. For example, OCBC business bank accounts enable us to visualise our cash flow position each month and even in advance with accounts receivables and account payables. This eliminates the need for manual calculations or waiting till we do our monthly bookkeeping. We can also leverage on our business bank account for basic payroll and even regular payments to vendors with transaction templates.
More advanced (and costly) solutions such as enterprise resource planning (ERP) and robotic process automation (RPA) may be delayed until they are absolutely required.
Ultimately, not relying on a suitable digital solution will also lead to poor record-keeping, giving rise to a series of administrative backlog as well.
#3 Not Seeking Professional Advice And Guidance
This is something we could relate to. In bootstrapping a startup, many first-time entrepreneurs think that they would “figure it out later” – after the business becomes more successful.
Tan Wei points out that new business owners usually observe how competitors are running their business and would just model their business after it. However, you may not have a full picture of what is going on behind the scenes or appreciate the structure that the other company has established.
This is another cost new business owners can save on. However as time goes by, you will only spend more and more time on bookkeeping. Business owners could have outsourced to a professional hire or financial consultancy firm, while focusing their time productively on growing the business.
Apart from time, having an experienced accountant or financial adviser may also save the startup money by providing the right financial information to maximise profitability, comply with government regulations and forecast future cashflow position.
Tan Wei has also seen corrective actions taken by businesses to be very time-consuming and costly. He believes that this is a crucial step in laying a strong foundation for any business.
Read Also: 12 Things Employers Need To Include In An Itemised Payslip
#4 Not Having Key Financial Metrics On Hand
Finally, Tan Wei shares that new business owners may neglect having a proper business plan which incorporates key financial metrics. Having these numbers and ratios on hand will allow you make more sound and quicker business decisions.
This is not something even more experienced entrepreneurs can do on their own given that it is quite technical, and it can be daunting to those without accounting knowledge. This is also why many entrepreneurs choose to focus on revenue and profit figures, less on understanding other types of financial metrics. Some key financial metrics include cash flow projection, projected income and balance sheet statements, breakeven analysis on investments and many others, depending on the segment the business is operating in.
Tan Wei explains that not having these metrics on hand can result in magnified financial risks. Business owners will not be able to analyse the business accurately in a timely manner, leading to poorer and slower decision making.
Furthermore, a sound financial forecast with relevant financial metrics is important for attracting funding and lending, or at least knowing that you have to take these actions. This can be solved with a combination of relying on software already available and having a financial professional you can talk to when you require.
Read Also: Top 10 Financial Terms Every Business Owner Needs To Know To Build A Profitable Business
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