Running a business, no matter the industry can be a daunting venture. It requires critical thinking and excellent decision-making skills that justify your business. Where every task in business is as important as any other, managing finances is the bane of every startup enterprise and small business.
In the early stages of your business, the expenses may arise, and your profit may hit a pause. This is where companies have a chance to make financial mistakes and halt their progress. Running out of cash is perhaps one of the biggest reasons many businesses are unable to make through the early stages of the venture.
With that in mind, if you are planning to begin with your business venture or already own a small business, here are ten financial mistakes that you must avoid at all times.
Ten financial mistakes to avoid
Improper financial management can have a disastrous effect on a business. It can range from being unable to pay the debts to expensive litigations and more. Hence avoiding the following mistakes is vital for every business owner.
- Not creating a corpus fund
Corpus funds is the capital put aside for the unexpected expenses when running a business. Creating a corpus fund can save you from experiencing corporal conundrums. It is essential to understand that no bank or credit union will invest in your business for its survival unless they see some progress in the business. In situations as such, a corpus fund becomes essential for the survival of the company.
- Having a long payroll
Another fatal mistake for a small startup is to have a long payroll for the employee. A good payroll can attract employees. It takes a major part of the revenue after the product. A good strategy here is to review the staff. Detect the workers that are redundant or underperforming. In cases as such, reassign the task to the employees to get the optimum output. The worst-case scenario is to let them off, which may be necessary. Besides, there is no point in having a large staff for a startup venture or small business.
- Absence of budget
Not having a budget is another problem that businesses need to address at the beginning. Most business owners trying to “do-it-themselves” tend to forget to set an account for the company. Be it paying for the services for direct deposit or live checks or the business expenses such as the taxes and rent of the building; it is essential to set a budget that defines the expenditures of the business. This mistake can be costly and turn your business to glide down the hill.
- Neglecting your pay
It is true that you are a business owner, but this doesn’t mean that you do not deserve to get paid. Not paying oneself is a financial mistake that can have a severe impact on your profits. Where you are free to dig into the kitty of your business freely, it is hard to keep track of your personal expenses. Paying yourself a fixed amount enables you to get a grip on managing the money of your business.
- no complying with the legalities
Since most startups begin as home businesses, business owners ignore legalities that are an essential part of a successful business. It means that you don’t have the necessary licenses and legal permits that legitimize your business. Remember, to become a legal business can be expensive. However, conforming to the state laws can save you and your business from an expensive lawsuit and criminal charges in the future.
- Improper pricing policy
It is challenging to stay on board in the raging sea of businesses. That does not necessarily mean you need to undercut the prices for attracting more customers. Price wars are perhaps one of the biggest mistakes that a business makes to stay in the market. Undercutting rivals means you admit that your product and service is inferior to those you compete with. This means lower profits.
- Too much credit
Credit can prove to be harmful to the business. Make sure to pay back at the earliest if you are buying products and services on credit. While giving credit to the customers, make sure to pay back on time. Credit is an unavoidable feature of the business. Unfortunately, building on too much credit can send the finances of your business down the hill.
- No secondary income
A secondary form of income is the investments made in stocks, equities, derivatives, and commodities, among others, which can help you to grow your business. Not investing in secondary income is perhaps one of the mistakes which must be avoided in order to increase the business. Make sure to get professional advice from financial consultants and make some investments to meet the unexpected expenses of the company or simply put in some more efforts to grow the business.
- Underspending on marketing
Not allowing sufficient funds for marketing is also one of the financial mistakes that businesses make. Saving for marketing doesn’t mean spending on TV ads and radio commercials or other marketing campaigns. There are many types of marketing tactics that don’t eat your bank balance. For example, digital marketing campaigns such as content marketing and SEO doesn’t require big bucks to get the word out. However, it is essential to remember that every marketing tactic requires research to know the customers for successful execution.
- careless cash flow
Being careless with your cash flow can land you in serious financial problems. It is highly essential to know where each hard earn penny is being used. Whether it is for marketing purposes or to make an investment, create a budget to organize the cash flow.
Business startups, being new in the business world, are prone to making mistakes. However, it is important to do your research and avoid making any mistake which can easily be avoided. Companies fail and grow due to finances. Getting fresh investments in your business is challenging. Therefore, the best way here is to manage the finances that you already have.
Author Bio: Margaret Phillips is a graduate of one of the prestigious names in the education industry and holds a degree in business administration. She is highly appreciated for her skills in managing business finance and is working at the On Time Payroll 247 for quite some time. She strives to make sure no details are left out so she can assist the business to succeed. She also loves to travel the world.