Many business owners have the desire to get to and stay at the top of their game and will be willing to do anything just to get there. But of all the roles, there is one that is often challenging especially to new business owners and that is finance management. Most businesses only focus on serving customers and forget to keep records for financial planning. You can stay ahead of the pack by avoiding these common financial mistakes.
Paying taxes is a social as well as a legal responsibility. However, there are high chances that you may overpay if you don’t understand the complexity of taxes like tax codes. Sometimes mismanaging funds can lead you to overpay your taxes. To avoid this, keep track of all your receipts and other documentations to know where your cash goes.
Every business has competition and it is easy to be dazzled by the amount of competition there is. After all, we all want to get to the top and stay there, don’t we? You may be blinded or overtaken by the extravagant nature of your competitor. Keep in mind that it is not about how much you spend but how much revenue you generate and re-generate that counts. Higher levels of profitability culminate into a stronger business eventually.
Impulse Buying During Start-up
It is easy to be over excited especially after making the first profit and this may push you into impulse buying or overspending on office furniture and other accessories. While that custom-made desk would be executive, you really don’t need it during start-up. You may end up eating into the profit margin without knowing. To avoid this, scrutinize every expenditure and ensure every coin counts towards business development in a way that can be measured.
There is completely nothing wrong with trying to diversify your business but ensure it is not an unnecessary venture. Business owners generally look into diversification after the first major success, instead of investing and re-investing in the initial business. Only diversify when the first business is able to sustain itself.
Being Busy Over Being productive
It is almost impossible to get more from your business when you don’t have a strategic plan for its growth. Money is either earned or saved and this can only be done by working more effectively with the resources that are available at hand. Look through your strategic plan, identify the weak points and make the necessary improvements. Don’t be busy, be productive.
Failure to Prioritize Savings
One reality that business owners must learn to appreciate is the fact that cash flow, especially in the initial stages of the business may experience a massive ebb and flow. Without a saving plan in place to survive the financially low seasons, one dry spell is capable of destabilizing the business. Have a strict maintenance of an account balance that equals roughly 2 months of operating costs. This way, you may be able to weather any business storm as you struggle to keep your foot on the ground.
It is easy to want to be a better product or service provider by offering a lower price than your competitors but this is not an advisable route to take. Higher prices usually protect your profit margins and contribute towards building your brand. Perform an exclusive market research on pricing and then come up with a price that is either close or a little higher that the market average. Spend time on developing your product in a way that it can command a higher market price. Build your brand and maintain your customers.
Failure to Budget
Budgeting helps you know how you spend your money and make adjustments where need be. Failure to create a budget or to strictly follow one that is in place may result in costly expenses. You may forget to pay tax obligations or other occasional but important bills. Formulate a budget that works for you and strictly follow it. Only make huge purchases when you need them not because you can.
Not Creating a Boundary Between Business and Personal Funds
This is common in sole proprietorship where the business owner might use their personal fund to buy supplies for the company. Or use business credit to pay for personal needs. When this happens, it becomes difficult to keep records and know exactly how much the business is making. It will be difficult to remit tax when you mix the two and worse off, you may not get a business loan if the need arises.
Depending on One Source of Revenue
The most common mistake businesses make is to depend on one source of revenue, especially when the client is a big payer. As much as it is right to serve your first few customers fully, don’t forget to put energy into building other sources of income for when the major revenue channel dies off because they tend to. Ensure your business still runs when this happens.
Planning with Money you Don’t Have
A common expression goes, “Don’t count your chicks before they hatch.” There is so much wisdom in this saying. A business may receive a huge contract then start planning with this money before they actually receive it. There is a difference between having actual revenue and almost having it. Only plan with money that is in your account.
Hiring More than You Need
When you hire workers, you will be obligated to pay their salaries/wages, as well as offer other benefits. Avoid hiring more people than you need at first. Make sure you have workers you can pay comfortably and only increase the number of workers as your revenue increases or when need arises.
The backbone of a profitable enterprise lies in keeping track of every penny spent and avoiding these common financial mistakes will help you protect the future of your business. Master your money matters; plan your budget, track your expenses, save for emergencies and always find ways of making your expenses generate future revenue. If you are looking for a perfect way to manage all these finances, but don’t can’t afford a full time professional, consider hiring an outsourced CFO on an interim basis. He will help you achieve the financial health of your business.