Running a small business is not easy—lots to learn and the curve can be steep. Bad habits form early, and can be hard to break. There is not enough evaluation, and things keep chugging along in ways that are harming efficiency, profit and overall success.
Finances are one of the key problem areas, and even if a business is doing relatively well, poor money management can be the kiss of death. Will you make money mistakes as you go along? Yeah, most likely. But, if you are just starting out, you can go a long way in protecting yourself by boning up on the most common mistakes those who have come before you have made money-wise. Here are just a few to bring into your awareness.
While a positive mindset is important in business success, many new business owners tend to be a bit overoptimistic with how things will unfold. You don’t want to be a negative Nelly, but you do want to proceed while keeping in mind things may be tough for a bit, and you may need more money than you think you do. Don’t assume you will be profitable within a year; don’t assume you can work with a bare bones marketing budget, and free methods, like social media or building an authority blog, will be sufficient to make sales.
Hope for the best, expect the worst, or at least, the ‘not so great.’ Be conservative with your spending and projections; you may need up to at least double the amount of capital you think you need now when just starting out. Seek out the advice of others to get an idea of issues that may not even be on your radar. If you are struggling with money matters, consulting with a professional may help. For example, there are part-time CFO services ,where you bring someone one part-time to advise you on your finances, and help you build a long-term strategy.
Poor Accounting Practices
If you are not keeping on top of your accounting, you are just asking for financial problems. Staying on top of it is about a lot more than knowing how much money is going in your bank account, and how much money is going out to pay vendors and other costs. First and foremost, you must monitor your receivables—make sure invoices are going out as soon as possible. Deal with late payments immediately—don’t let an invoice sit 30 days past due because you are worried about offending a client. Get some good software to keep track, and run regular financial reports. If you don’t think you can do this, hire a part-time bookkeeper, or outsource it.
Rushing into Long-Term Financial Commitments Too Soon
So, you have secured funding for your business, and you are raring to go. Good for you. But, this big lump sum can create a false sense of security, driving you into long-term financial commitments that may not be necessary or advisable at this time.
Do you really need employees right now, or will independent contractors or outsourcing tasks on an as-needed basis do at the moment? Do you really need that big office space right now, or an office at all? Maybe you can work out of your house for now. If you are thinking about leasing equipment, do you need every single thing you are considering right at this moment? Think carefully before spending money.