It is nearly Halloween, and in the spirit of all things spooky, we have decided to compile a list of the biggest financial mistakes that small businesses owners make.
Every small business owner has to be financially savvy if his/her business is to survive. This is no easy task, though—eight out of ten entrepreneurs lose their businesses within the first 18 months of their endeavor. What causes so many businesses to fail? Most of the time, failure is the result of financial mistakes. Check out this list of common financial faux-pas committed by small business owners, and make sure that your business venture doesn’t turn into a horror story.
Mistaking profits for cash flow
While it may seem a bit perplexing, it is crucial that small business owners understand that a healthy inflow of profits does not necessarily mean that their business has a strong cash flow.
Small business financing is difficult—profits come sporadically and you rarely get to pocket the returns that you earn off of deals. Unforeseen costs and debt oftentimes consume the profits that small business owners earn off of sales. Moreover, in its early years, your startup will be going through rapid expansion—new equipment, new staff, and new facilities will be necessary to remain competitive in whichever industry you are, and all of those require significant investment. So while it is tempting to record all of your profits as a net gain, it is better to be a bit shrewd—never underestimate your business expenses, and never overestimate your cash flow.
Bad bookkeeping is lazy, and bad bookkeeping is the best way to sink your business and join the ranks of small business horror stories.
Be meticulous with your records. Every penny counts when it comes to financing a small business. Make sure that you keep a clean record of all of your transactions. Financial mistakes usually stem from these bad bookkeeping errors:
- Over-doing it yourself—with limited funds, it is oh-so-tempting to be your own accountant. But remember, you are not a CPA. Paying an accountant for his/her services will save you money in the long run.
- Blowing off the books—nothing leads to bad bookkeeping like… well, simply not keeping records. Whether the transaction is big or small, if cash changes hands, write it down! Always.
- Poor communication with your accountant—if you do have somebody handling your records and filing your taxes, make sure that you keep in close touch with that person. You should oversee all that happens.
Lack of a plan and budget
Never—I repeat, never—undertake a project without first planning a budget. Allocating a calculated sum of funds and planning therefrom is any small business owner’s best course of action when taking on a new project. Anticipate the costs of the endeavor before you get the bill. Efficient planning will help you avoid losing unanticipated sums of money and will also help you to evaluate whether a project was fiscally worth it post facto. Effective budgeting and planning can help you to identify which types of contracts and arrangements are good for your business and will train you to seek out advantageous undertakings in the future.
If you avoid these three deadly sins for small business financing, you will most likely avoid financial mistakes, and your business won’t fail like the majority of other startups. Do you find that you need a stronger cash flow in order to see to it that your business is successful? If so, get in touch with a representative from Factor Finders—we are the invoice factoring experts, and we can find a way to up your cash flow and expand your business, regardless of the industry. With Factor Finders, financing a small business isn’t scary, even if you have bad credit—we won’t let your startup become a small business horror story.