Small businesses could prove to be empowering and offer both financial and personal freedom provided they run with the right mindset. On the contrary, small business owners tend to make financial mistakes that lead them to their downfall. The key to any business success is avoiding such pitfalls. Here are a few mistakes small business owners make.
1. Making big purchases at the start of a business
Business owners would want the latest laptop at the office, trendy furniture, flashy websites, and the most talented staff members at the beginning of a business. Before making massive purchases at the beginning, you need to think carefully and ask yourself whether the investments will generate income in the short term.
Experts from this website specializing in finances would advise you to think thoroughly before making purchases since competitors might influence you to overload, and that will make your returns more complicated. At the start of the business, try joining a vast marketplace using a platform, and ensure that you keep track of real-time performance to grow faster.
Small business owners might decide to host luxurious parties, purchase frivolous electronics or arrange some team-building trips that offer little value to business growth. Try growing your business first, accumulate some disposable cash then organize all the fancy activities once the company is established.
2. Combining business and personal expenses
Most small business owners fail to keep account of their business transactions since they mix their personal and business expenses. This practice will make bookkeeping a tough exercise mainly when calculating tax. You will waste money and time sifting through receipts and bank statements as you struggle to identify business expenses.
You can always open a business account to minimize mixing your expenses provided that you have a tax file number and a valid ABN. Use the business account for making relevant transactions.
3. Failure to monitor the business credit score
You already know that the business has a credit score that happens to be different from your credit score. The credit score narrates your debt history, your debt utilization ratio, and repayment history. Your credit score continues growing as your business progresses, and it will be useful in the future when securing your business financing.
Keep in mind that the score is a public record, and whenever credit providers realize that the rating is low, they might decline to offer you loans or might offer less favorable terms. Look into your credit card payment history and ensure all numbers tally; it could help boost your credit score.
4. Soft Hiring
Some businesses tend to hire staff members based on connections, and it ends up being catastrophic in the long run. Weak hiring might save you on recruitment time, but its essential to always consider the side effects. Any business requires a talented and skilled workforce that can propel the business forward and find the right people will take time and effort.
5. Failure to save for emergencies
All business owners need to save some money that they can use in case they encounter unexpected expenses. You can call it rainy-day savings account and always expect emergencies when running that business. Credit cards will be a short-term solution during this time and will create even more problems as time passes. It would be advisable to keep at least four months’ worth of expense in a contingency fund that you can use for personal and business expenses.
6. Early borrowing
Small business owners often get caught up in big dreams and end up borrowing too early. In most cases, they find it hard to repaying the loans since they fail to achieve their sales targets. You need to be realistic when making your sales projections and have a contingency plan in case matters go south. Avoid early borrowing when the business has just begun; this will help you in the long run.
7. Failure to have a business budget
Running a business without a budget will prove to be catastrophic since you lack a guide that helps you analyze what you can and cannot afford. You need to steer your business towards a profit, and you can only achieve that with an operational and marketing budget. A planned budget clarifies the map to business success and increases financial discipline in small enterprises.
8. Failure to plan for retirement
Most business owners are always under pressure to keep the business afloat, leading the team, and managing marketing. You might fail to consider some long-term realities such as planning for retirement, and this could be a disastrous mistake. Always remember to plan earlier in life so that you have peace of mind when you retire. You also need to have a succession plan at least five years before retirement in case you wish that the business continues after that.
Generally, all business owners learn from their mistakes, and as your business grows, you will either need to learn from your mistakes or the mistakes that others have made. Always keep these mistakes in mind and avoid making them as you strive on your way to success.