There are many aspects of running a business, from marketing to customer service, but if you don’t have a handle on your finances, you are going to struggle to survive. You may be the greatest salesperson in the world (or in your head), and you may be fantastic at building relationships. When you become a business owner, however, you are suddenly going to wish you had paid more attention in your mathematics lessons at school.
You may be one of those lucky few who has an incredible knack for numbers. However, considering how busy you will be managing the other areas of your business, it is easy to let your financial management slide. Therefore, consider the following and don’t make the same mistakes.
Getting behind with the accounts
You don’t want to lose sight of your accounting, as you will only create extra work for yourself in the long run. Make sure you schedule part of your week to get on top of your accounts before they get on top of you. Use an accountant if you don’t have sufficient time to manage your finances. They will help you manage your company taxes, control your income, and help you maximize your profits. Having extra help will give you time to focus on the aspects of your business that you are skilled at, rather than struggle with something you don’t.
Failure to budget
You want to make a profit and not a loss, but if you fail to budget effectively, you are going to run into trouble. From having a start-up capital to considering the day to day running of the business, you need to plan ahead. Four out of every ten businesses fail within five years, and part of this is due to poor financial management. Therefore, know what you need to spend to stay afloat, from hiring staff to marketing costs. You should also prepare for the unexpected, such as damage to your property or equipment failure, so always have enough money in your reserves for when you need it.
Confusing personal and business finance
You need to separate your personal and business life when it comes to managing your finances. When self-employed, you need to cover costs that wouldn’t be required when working for an employer. For example, you may rent office space, buy your own equipment, and have staff wages to pay. So, having a separate business account at your bank is vital. Otherwise, your home and family life will suffer if you are spending money that is usually designated for your household bills, food, mortgage, etc.
Cutting the wrong costs
While there are many effective ways to cut costs within your business, you need to avoid areas that may lead you to financial ruin in the future. Sometimes you need to spend money to save money. For example, consider the following:
Failure to invest in staff training is going to lead to low morale and a team under equipped to do the job properly. Having a team with the right skills and knowledge will lead to greater productivity and eventually bring in profit.
Buying second-hand equipment is a careful choice, but there are risks involved. Considering the many tools you need to keep your business going each day, when something breaks down or doesn’t function correctly, you are going to have a delay in production. This will lead to unhappy customers, and you may even lose their business.
While you may think you can handle all aspects of your business yourself, or with your staff team, it is still worth spending money on outsourcing specific tasks. For example, a
web designer will work on your website, improve its presentation and ensure it functions correctly across computer and mobile devices. Consider the weaknesses within your company and hire other people occasionally to get the work done.
Spending too much money
Particularly during the startup phase, many business owners spend a lot of money on items they don’t necessarily need, such as vending machines or hiring too many people for the job. Buy what you need at the beginning, and use any profit to purchase new equipment and employ more staff when you have a better grip on what your company needs.
No matter how much profit you make, don’t assume you can splurge your cash. Always spend your money with care. A shiny new computer will benefit your job, but you don’t need to buy the most expensive model from the store for features you may never use.
There are also ways you can cut down on your overheads in much the same as you would do at home. So, consider the bills you are paying each month, including electricity, telephone and internet services. Don’t pay them extortionate amounts of money when you could easily use a price comparison service and find a better deal. Also, make your office space energy-efficient by changing your light bulbs and unplugging any devices you are not using. Every penny counts in business, so while you don’t want to be a Scrooge-like figure all of the time, there are still ways to make considerable savings in the long run.
Diversifying into new business areas
There is an old adage, don’t run before you can walk. Never has this been truer than in business. Don’t rush ahead in futile attempts to beat the competition or to capitalize on new ideas, as you may waste money rather than gain any. When you have found your niche in business, stick to it, and don’t drop everything suddenly without making a good effort to fulfill your original goals.
Understandably you are afraid of failure, but a few mistakes or a lack of profit does not mean your business is going to fall by the wayside. Therefore, persevere before changing everything up and trying something new. When you have given your venture a chance to succeed, then is your time to diversify, with a new product or development of an existing one.
