10 Greatest Side Effects Of Poor Financial Management On Your Business


The following are the 10 greatest side effects of poor financial management on your business:

  • Causes loss of business opportunities
  • Leads to Inefficiency
  • Results in low productivity
  • Causes low profitability
  • Results in inability to compete
  • Piles up high debt profile
  • Causes legal issues
  • High cost of capital
  • Wrong investment
  • May result in business shut down

Far too many small businesses fail due to poor financial management.

You do not want to be a victim. The the side effects of poor financial management is something that you cannot afford to experience.

Therefore, this article is focusing on some of the obvious side effects of poor financial management on a small business such as yours.

Can cause loss of  business opportunities

Poor financial management can lead to loss of business opportunities.

For example, if you  lock up a significant portion of your business capital in fixed assets, it will affect your working capital.

If you are always having problems with your working capital, you can take advantage of sudden business opportunities.

Furthermore, if you do not have sufficient working experience capital

A sudden business opportunity could arise as a result of changes in government policies.

They can also pop up as a result of events or other activities in your industry.

Therefore, Insufficient working can rob you of potentially profitable

business opportunities.

And, of course, your competitors who have sufficient working capital can easily grab any business opportunities that may pops up.

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Poor financial management: Leads to inefficiency

Another side effect of poor financial management  is that it could lead to inefficiency in the way you run your business.

For example, if you do not prepare, implement and monitor your cash budget, you can have problems meeting your business obligations.

For instance, you might not be able to service your loan, pay wages, suppliers and other business bills as they fall due.

If you have to pay a surcharge for defaulting on loan agreement, this will :

. reduce your profits

. Expose your business to potential legal issues.

.Cast doubts on your integrity and put question marks on your credibility

Results in low productivity

Yet another side effect of poor financial management is low productivity.

For example, if you are experiencing regular stock outs of essential stocks and raw materials, you will not be able to meet customers’ delivery deadlines.

Furthermore, if this situation continues unchecked you might face the risk of keeping idle machines.

Additionally, you will have to pay employees for idle time.

Results in low  profitability

Low profitability is yet another undesirable side effect of poor financial management.

For example, you can not expect employees you are owing months of unpaid salaries to generate sales and profits for your small business.

In addition, when employees are not working at optimal  level. you will have to pay for overhead costs brought about by idle time.

Paying for idle time reduces your profits.

Therefore, when your business continues to report losses, sooner or later your business might go under.

Results in inability to compete

Inability to compete in the marketplace is another side effect of  poor financial management.

For you to be able to compete in the marketplace, you will need to have a robost working capital.

For example, if you do not have adequate working capital, you will find yourself constantly moving funds meant for ads to wages, rents and so on and so forth.

Therefore, to be able to compete effectively and consistently, you need to have enough working capital.

Pile up high debt profile

Poor financial management can make it difficult to meet your business obligations as they fall due.

For instance, if due to poor financial management, you are unable to pay your business bills as they fall due, it will affect the smooth running of your business.

Moreover, inability to meet recurrent business expenses can hurt your business growth.

Furthermore, if you have high debt profile, it will be difficult for you to access loans from lenders.

Causes legal issues

Poor cash management can land you in court.

For example, if you take a loan from bank and are unable to service the loan, the bank can take legal actions against you to  recover their money from you.

Worst still, the bank can sell your personal and business property to recover their money.

In in the same vein, your suppliers and other creditors can take similar actions against and your business.

Therefore, poor financial management can force your business to shut down.

High cost of capital (interest)

Some times, you might need to borrow funds from lenders to upgrade your business.

If you do not have sound financial management skills, you will not be able to negotiate favorable interest rates.

Remember that high interest rates will reduce your profits and business growth.

Can lead to wrong investments

Poor financial management can make you place your money in an investment that may not yield you high returns.

For example, you can just buy shares in a company that has not paid dividends for years due to poor profitability.

Beyond that, you can put your money that is an unprofitable investment.

Leads to business shutdown

Poor financial management can make your business to shutdown.

For example, if your business  continues to report operating losses year in year out, your business will shut down before you know it.

The frustration associated with business failure is better imagined than experienced.

Therefore, you should take steps to put in place effective and efficient financial system that should safeguard your investments.

Related: 9 Best And Most Effective Ways To Prevent Business Failure


By Samuel Ijenhi


About Samuel Ijenhi

A graduate in Accounting, University of Benin, Benin City, Edo State, Nigeria.
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