Managing finances is the bane of every startup enterprise and small business. In fact, figures worldwide clearly indicate, over 80 percent of small businesses and whopping 90 percent startups fail due to improper money management.
If you are planning a startup or already have a small business running, here are 10 financial mistakes you should avoid.
10 Financial Mistakes to Avoid
There are several reasons every business owner should avoid financial mistakes. Other than mere closure of business, improper financial management can have other disastrous effects on your personal life too. They range from inability to repay debts to expensive litigations. Hence, avoiding these financial mistakes is vital for every business owner.
Not Creating Corpus Fund
A corpus fund is simply money put aside to meet unexpected expenses when running a business. By creating a corpus fund, you shield yourself and the business from experiencing financial doldrums. Remember, no bank or credit union is going to lend money that easily when it comes to survival of a startup or small business. In such situations, a corpus fund is useful as small business owner, you have some money as buffer.
Having Long Payroll
Long payroll is another financial mistake every business owner should avoid. Review your staffing. You might detect some workers that are actually redundant or even underperforming due to nature of the business. In such cases, it is best to reassign tasks to such employees to get optimal output. And in worse cases, laying them off maybe necessary. It makes no sense in having large staff for a startup venture or small business.
Absence of Budget
Not having a budget is another financial mistake that is best avoided by business owners. Generally, most Do-It-Yourself business owners neglect drawing a budget. Hence, they tend to underspend on some features while overspending elsewhere. This mistake can prove very expensive and spell doom for your business.
Neglecting Own Pay
You are the business owner. Fine. That is no reason why you should not pay yourself a fixed salary. Not paying self is a financial mistake best avoided by business owners. You are free to dig into kitty of your business freely. However, this causes you to lose track of personal expenses and can eat heavily into your profits. Paying yourself a fixed salaryenables you to get better grip on managing money of your business.
Ignoring Legal Compliance
Since most startups and small businesses launch from homes, business owners ignore legal compliance. This means, you do not obtain the necessary licenses and permits that legitimize the business. Understandably, licenses and legal compliance is expensive. However, complying with the law can save you and the business from expensive lawsuits and possibly criminal charges.
Too Much Credit
Credit both ways can prove harmful for your business. If you are buying supplies and services on credit, ensure you pay at the earliest. While giving credit to customers, make sure they pay on time. Credit is inevitable feature of every business. Unfortunately, too much credit either way can send finances of your business in a downward tailspin from which it may never recover.
Improper Pricing Policy
Yes. You will be up against stiff competition in almost every business. That does not necessarily mean you should undercut rivals on prices to ensure you attract more customers. Price wars often lead to collapse of a business. Hence, this is a financial blunder every business owner should avoid, if serious of staying in the market. By undercutting rivals, you are directly admitting your product or service is inferior. It also means lower profits.
No Secondary Income
Not having a secondary source of income is yet another financial mistake every business owner should avoid. You can develop an excellent source of secondary income for your business by investing in stocks, equities, derivatives and commodities, among other options. Get sound advice from a financial consultant and create a basket of investments. This secondary income is useful to grow the business, meet unexpected expenses or even to stash away in the corpus fund.
Inattention to Cash Flow
Inattention to cash flow can land your business in serious financial problems. It is extremely important to know where each penny from your investment or profits goes. You need to keep track of cash flow daily. Use a budgeting app if necessary and create various heads to keep track of income and expenses on daily basis to manage cash flow.
Underspending on Publicity
Not allotting sufficient funds for publicity is also a major financial mistake every business owner should avoid. This does not mean you spend heavily on expensive TV and radio commercials or marketing campaigns. Instead, you can create online advertising and marketing strategies through Google and promote the business. Remember, people need to know you are in market before they become your customers.
Startups and small business owners are most vulnerable to these financial mistakes. Companies grow or fail due to finances. Every medium or large business began as startup or small enterprise. They managed money astutely and became successful. Getting fresh funds for your business is often difficult. Hence, it is best to properly manage what you already have. Enlist help of a financial advisor or consultant if you are poor at money management. Proper money management will ensure your business does not run out of cash. By avoiding these 10 financial mistakes, your business can prosper too.
Cyndrella Cole enjoys blogging and content writing. She has worked with a number of corporate houses and startups. She has also created content on various topics like, technology, e-commerce, education and many more.