Building globally recognized brands from small businesses is no folklore, but it is surely not an easy task, as well. Being dedicated, determined and hard working sometimes is just not enough. Business owners need to be good at all crucial aspects, one of which is finance. To be noted down, finance exists in all kinds of business ventures and failure in finance can lead to bankruptcy. That is why mastering the skills to manage finances should be one of the entrepreneurs’ top priorities. Well, no worries if you do not study finance in college, you can be quite well equipped to handle common financial hurls by reading the following financial mistakes which are generally made by small enterprises and learning from them.
The most sensible financial advice to remember is this: for the business to flourish, you need to make sure that the amount of income is bigger than the expenses. To go along with the advice, the very first thing to do is to create a bank account, debit and credit cards for your company. By separating personal cash flow and the business one, you as the business owner will get to obviously see, check and control your financial conditions. In addition, it simplifies the work of your financial team as it avoids confusion on account balancing, receivables, taxes, etc. In short, this account separation allows you to know how much your company has earned, how much to spend and to spare.
When it comes to spending, the most common issue is as simple as forgetting to jot down $5 expense. This should not go unnoticed. Instead, such a simple mistake should be addressed immediately so that it does not give bigger damaging impact. Imagine if there are twenty $5 expenses going directly into the dustbin in a month. Not only would you think that the income is $100 more than it actually is, but the percentage of tax will also be $100 higher than it should be. How about if the situation goes on for a year? The loss is such a waste. If this is what happening in your business right now, the possible solutions can be to adopt a scrutinizing financial system or to hire a responsible, qualified staff to take care of the matter.
Still in regard to expenses, not many young entrepreneurs are careful enough when spending capital. They seem to lack the understanding that good money management means the money is spent on something beneficial for the company. Expensive branding and marketing campaigns should not simply be created to compete with other companies’ lavish promotion. The company’s financial health should be way more important than prestige, and even if there is this urgent need for marketing campaigns, they should be in line with the company’s budget and effective at the same time. To pull this off, here the main role of a business leader is shown off: the skills to get most out of the resources s/he has and to calculate whether something is worth the effort, money, and time.
Another financial issue that is usually not effectively handled is overdue and late payment. This case can happen in many ways. You as the business owner who might have taken out a loan from a bank might not remember to pay the debt before it is due. Late debt payment can lead to increasing interest rate and possibly an extra penalty which tend to be painful to pay in the end. The other scenario is that you give customers a long time period for them to pay off their debts to your company. These long periods are not healthy for the company’s cash flow. In fact, some experts suggest that the maximum time should be 14 days. They argue that as long as the products and services are of high-quality standard, a time limit for payment should not discourage customers to buy more.
As for the amount to spare, its function is to be your company’s safety net in case business suddenly flips over, which is kind of inevitable in business. With startup ventures as the most vulnerable to the unfortunate possibility, it is suggested that the savings should at least be equal to three months’ operational costs.
Last but not least, the big mistake that startup businessmen are prone to make is the way they “treat” their time. While some even have not got a clue that time should be treated with special care (just like their account balance), some others have realized the importance of time but tend to mistakenly waste their time on something frivolous. The easiest why to avoid making such mistakes is to question if the thing you are going to do will help the company to earn more or not, and once you get the idea of what is important for you to focus on, give these significant matters 80% of your working hours.