If you would like to make the most out of your business and make it work for you, it is important that you keep an eye on your finances. One of the main reasons why startups fail is that they don’t have a sound financial foundation and plan. It is true that you need money to make money.
While it is possible to build a business from scratch, the more you invest the faster you will grow. Below you will find a few tips on how to avoid some of the financial mistakes small business owners make.
If you would like to make the most out of your business and make it work for you, it is important that you keep an eye on your finances. One of the main reasons why startups fail is that they don’t have a sound financial foundation and plan. It is true that you need money to make money. While it is possible to build a business from scratch, the more you invest the faster you will grow. Below you will find a few tips on how to avoid some of the financial mistakes small business owners make.
You might have an optimistic outlook on your business, but this doesn’t mean that you have to ignore reality. If you have limited or no knowledge about how business finance works, you might want to talk to an expert. You can maybe afford the investment right now, or upgrade your fleet, but will it be a long term commitment? If yes, do you have securities to make ends meet when things turn from good to bad in your business?
Building Up Bad Credit
While investing in your business is important, you will have to be careful with not overcommitting, If you ignore the deadlines and fail to make the payments on time, you are likely to miss out on bigger credit options that will help you take your business to the next level. That is why you should always have processes in place to ensure all your payments are made on time. You can get in the bad books of the tax authorities if you keep on missing the deadlines. You will have to prevent trouble in your business, so you can stick to your growth plan.
Long Payment Deadlines
You might want to please your first clients, and give them better conditions than your competitors. There is nothing wrong with this, unless this results in you having to finance your own projects. Your business liquidity will be in danger if you have to pay your suppliers within 7 days and you allow your customers to settle their bill a month after the project completion.
Trying Too Hard to Keep Your Customers Happy
When you start a business, you are full of passion, and you have a strong calling to help people. The bad news is that some of your customers will take advantage of this, and try to get more for less. You will have to remind yourself that the reason why you started your business is to make money. Set a minimum profit margin and maximum resource allocation for each project, so you can avoid working for free.
Not Conducting a Profitability Analysis
You might be checking the competition and do your market research to find your position in the competitive marketplace, but you will still need to stay profitable. If you cannot compete on price, you will have to find another way of standing out from the crowd. There is no point losing money or just making ends meet, just to be cheaper in the market. Sometimes people will be more likely to buy from you if you don’t offer budget prices. Find our USP and communicate it. Remember the queues outside of the shops when the latest iPhone is released? It is not the cheapest phone, people still buy it.
Not Having a Debt Collection Agency
Unfortunately, no matter what you do and how many precautions you take, people will fail to pay you. It is better to be prepared and have the number of a debt collection agency ready when this happens. You will need to deal with bad debt swiftly, and send out official collection letters to be taken seriously. Being owed money can take you out of business completely, so you will need to ensure your cash flow doesn’t suffer because or one or more clients ignoring their bills.
Throwing Money In Advertising: Not Working
It is also important that you are not wasting money on just ticking the boxes. Having a website is great, but what if it gets no visitors and doesn’t generate leads? Is it worth the investment? The same applies to magazine and online advertising. If your SEO company is not delivering value and results, it might be time to change and find someone who does. After all, every service is just as good as the results you get out of it.
Thinking Long Term
It is important that you create a 5-year business plan and break it down to small, quarterly projects. This will allow you to get to where you want to go faster. You might think that you can avoid paying your tax and insurance, but you can’t bury your head in the sand, Check out mahanyertl.com and find out about the long term and short term consequences of missing your deadlines and not meeting your commitments.
Not Having Insurance
Every business needs to be prepared for emergencies, or they will be affected by unexpected events. No matter if you need liability insurance or need to secure your building, it is your business continuity that is at stake. You should talk to an expert about how to secure your business and ensure that nothing can knock your books out of balance.
Not Having an Exit Strategy
Of course, you are working hard now and would do anything to make your business work. But are you really able to take a step back from your business and let it run itself? The key is to make your business work for you and not the other way around. You need to create an exit strategy that will allow you to have a passive income, while other people you trained are doing the work.
What was the last time you had a closer look at your business financial health? Are you ready for unexpected changes in the industry or customer habits? Is your company generating enough profits from its activities? If not, it might be time for a financial audit.
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