Many business professionals make an innocent mistake early on in their careers or ventures that ends up costing them dearly in the long run. Though the worlds of business (and particularly those of entrepreneurship and business ownership) can include numerous pitfalls, one particular type of mistake can be very difficult to undo and can potentially cause permanent damage to your career, your business, and even your personal financial security: financial management without an expert.
Trying to do your own financial management if you aren’t a financial professional is similar to trying to perform engine maintenance on your vehicle. You might get it right for a time, but at some point something will go wrong — and you may pay a heavy price for it.
Financial management is an area that you’d be well advised to leave to the professionals. A bit more cost upfront can help you avoid a number of substantial risks down the line.
What Does Financial Management Refer To?
Many might hear the term “financial management” and think of financial accounting. However, accounting is just part of the picture. In the realm of business, financial management refers to making strategic decisions about a company’s financial systems and assets. Sound financial management would make these decisions in a way that allows the company to remain healthy, growing, and compliant with any applicable regulatory or legal standards (based on its industry, size, location, and other factors). Though the term has related definitions when used in contexts such as personal finances, it usually pertains specifically to business.
While some versions of personal financial management can be quite straightforward and done on one’s own (for instance, conventional employment that one can easily manage with an individual tax software and a spreadsheet), financial structures necessary for even small businesses can quickly become complicated. These need to be managed by someone with a professional financial background.
Why Managing Your Finances Yourself Can Be a Bad Idea
Finance management is multi-faceted. Financial management involves working with a few significant financial constructs, and may also include other facets or coverage areas based on the situation and entity involved. One of these core areas is taxation. As mentioned above, another is any regulatory or legal requirements pertaining to finances or financial assets based on the company’s industry, size, location, and more.
A third area of concern for businesses with employees is payroll. In addition, things like investments or assets, insurance, foreign currencies and exchange, cash flow, supply and inventory, and more all might play a part in a business’s financial portfolio. Each of these areas can be subject to complicated regulatory requirements and abundant nuance. Without a robust understanding of these areas, it’s easy to make ill-advised decisions out of ignorance which could prove disastrous in the long run.
In addition to its vastness, financial management poses another problem for those who would prefer to perform it themselves. Getting financial decisions wrong introduces significant risk. You don’t want to add the discovery that you’ve accidentally committed four years of tax fraud to the normal stresses of running a business.
Correcting taxation or regulatory errors after the fact can be incredibly expensive and sometimes impossible. Making ill-informed decisions about your assets can result in significant losses, lawsuits, or bankruptcy. Financial planning errors can be difficult to catch until they have caused severe ramifications.
The complicated landscape and significant risks incurred by financial management issues make it ill-advisable to conduct financial management on your own without the input and oversight of a financial professional. Finally, hiring a financial professional for your financial management comes with an additional bonus: financial managers can often help you take advantage of resources you might not have known about that can benefit your business in sometimes substantial ways.
From tax credits to incentive programs to knowing the best types of accounts or vehicles for your assets, financial professionals can help you secure significant benefits you might never have otherwise known you were leaving on the table.
The Types of Professional Financial Support Available to You
If you have decided to bring on a financial professional to help tackle your financial needs, there are a few decisions you need to make that can help you quickly choose the right professional for the job.
The first question you’ll need to answer for your business is the type(s) of support you need. There are a number of different types of financial professionals. They often provide overlapping service types but are each good for particular cases or applications. This can get confusing – for instance, the difference between a financial planner and a financial advisor isn’t immediately apparent but has to do with the scope of the advice each provides.
Do you need an accountant, a taxation expert, or a financial analyst? Perhaps more than one? Or something entirely different? The answer will depend on your specific needs and situation. Do a little bit of research or book a complimentary session with a financial professional that offers free initial meetings and you’ll be able to narrow down your needs to the right person for the job.
Another important consideration that will help you find the best financial support is determining how much financial management work you anticipate having per year for the next 2-3 years. Do you have enough work for a financial professional to hire one in-house? For the vast majority of small and medium-sized businesses, a full-time financial manager might not yet be necessary and contracting a professional on an as-needed basis might be the right option. However, it’s important to look at the volume of work you anticipate having over the coming year or two. In some cases, it may prove more cost-effective to hire someone.
If you run a business, it is worth too much to risk some kind of financial disaster. The cost of a professional financial manager is well worth the security of making sure your financial decisions are being made by an expert.