Being on top of finances is as crucial as winning new clients for the business while retaining the current ones.
However, many are the small businesses that find bookkeeping and money management a challenge and relegate them to the back seat. To grow your business and sustain high productivity, you should avoid these mistakes that are common with most businesses.
Operating with insufficient cash
Insufficient cash is one of the top causes of enterprises failure at all levels. At startup, many overestimate how soon their enterprises will break even and start making a profit. Therefore, they underestimate the expenses the business will incur hoping that the revenue will cater for them.
Notably, even after the business starts generating steady cash flow, it is still possible to run into problems after a business picks up if you cannot distinguish between sales and cash flow. For example, if a business has very high sales on its records, it can still land into problems if the payments are not made in advance. Think of a situation when one of the biggest clients pays late. You need cash to keep the business running.
Waiting for a very long time before seeking credit
The rule of the thumb with business credit is never to start seeking a loan when you desperately need it. For example, if the bills are late and the business is at the edge of failing, you might find it very hard to get credit. Even the credit that could be available will always come with stringent conditions such as high-interest rates.
It is important to carefully check at the business from a long-term objective and seek credit early enough. The nature of credit to go for is dependent on the type of the business. Here, it is important to identify a financial institution that appreciates your business so that you can access cash fast based on the organization performance. If your business is profitable, most lending institutions will be willing to work with you.
Mixing personal funds with business
Whether it is a new enterprise or an established organization, mixing personal and business finances will accelerate your enterprise to disaster. You will find it difficult to follow the performance of the business, filing returns, and the organization can consume personal cash. Once you cannot account the performance of the business, it is like driving a car blindly.
Maintaining separate accounts for the business and personal cash is prudent. Even when you need to get some cash from the personal account for business, it should be captured well so that the actual performance of the enterprise can be established.
Underpricing your products and services
Startups often make the mistake of underpricing their services or products because investors think they will attract more clients.
However, charging too little risks making very low profits or not making any at all. By charging very little, investors forget to factor their own labor and other expenses that ultimately cause cash flow issues.
It is important to consider every expense that was incurred to put the product on the shelf and then add the profit you anticipate.
Do not forget to include the obligatory taxes. If you find it difficult to set the right price, it is very important to seek assistance.
Planning to Start an Art Business? Use these Steps
These Strategies can Help You Overcome the Future Challenges of Your Organization
Why Now is the Best Time to Grow Your Business in APAC