Ultimately, when it comes to business, nothing matters besides the numbers in your bank account. Keeping your bottom line healthy is essential for keeping your business alive and growing.
But here’s the thing: entrepreneurs aren’t always the most experienced bunch of people. Half the time, they’re operating on a wing and a prayer, feeling their way to success. Sometimes it works, sometimes it doesn’t. And when it doesn’t, it can cost them big. Here are some of the financial mistakes entrepreneurs make on a worryingly frequent basis. Read on and avoid making these mistakes yourself.
Businesses are required by the law to pay taxes – no surprises there. But new ventures often end up paying a lot more than they need to. Often it comes down the mismanagement of expenses (like not keeping train tickets). And sometimes it’s a result of the complexity of the tax system itself. According to a YouGov survey, 21 percent of business owners said they claim less than half their expenses. 19 percent said they wouldn’t bother claiming if it was for something less than $15. And 10 percent admitted that they barely claimed back any of their expenses. No wonder so many small businesses are losing money.
No Money In The Kitty
Small businesses tend to have big plans. They’re driven forward by highly motivated people, desperate for them to be a success. That’s great. The problem comes when that desperation translates to never having any money in the bank. Here’s the problem: your accounts receivable might look quite healthy. But unless the money your clients owe you is actually in the bank, you risk a cashflow problem. Cash flow problems plague small businesses, and they often end up taking out expensive bridge loans to cover their deficits. This, in turn, makes their businesses less profitable.
Thus, experts recommend that businesses keep two months of operating costs in their current account. Two months of cash gives businesses leeway should they encounter any rough patches.
Failing To Know The Difference Between Being Busy And Being Productive
The only way that businesses get money is by providing value to other people. It doesn’t matter how much time you spend running ragged; customer value is what counts. Take a step back from what you’re doing and ask whether it’s something that helps meet customer’s needs. If it isn’t, it’s superfluous, and shouldn’t be a part of your working day.
Also, look at why you’re running ragged. Is it because you don’t have an adequate accounting solution? Is it because you’re not using CRM software? Could it be down to the way you’re organizing deliveries? Sit down with your staff and use them to help you iron out inefficiencies.
Once you’ve had some initial success with a product, what’s the next step? You’ve got two options. The first is to double down and invest in your existing product. The other is to diversify and launch a new line. Which should you choose? It’s a hard decision. But you should only proceed with a new product if you feel it will help maximize your chances of success. Otherwise, reinvest proceeds back into your current product.by