Remember the old cliché “failing to plan means that you are planning to fail?” Owning and operating a small business (offline or online) is extremely difficult as it is, especially in today’s unstable economy and you cannot afford to make any financial mistakes. Here is a list of the 5 most common financial mistakes that small business owners typically make.
• Failing To Create A Budget And Sales Forecast – Expense budgets and sales forecasts are vital to the survival of any retail product or service based business. Even if you develop simple budgets and forecasts, it will enable you to monitor and track your progress. Plus, they serve as a guideline for your month-to-month expenditures and revenues.
• Focusing On Expenses Instead Of Growing Your Revenue – One of the more common mistakes that smaller businesses make is the tendency to cut expenses instead of growing their revenues. If you manage your revenue growth based on your cash flow restraints. The key drivers of revenue to be concerned with include average individual customer sales, how many customers you are getting, and the number of times they purchase something from you.
• Improper Allocations Of Resources – Small business owners are confronted by many options when it comes to investing/spending capital. However, the mistake they make is not evaluating them and failing to consider the cost-benefit of each one.
• Not Having Enough Capital To Operate Your Business – This is more commonly referred to as “undercapitalization” and is one of the biggest challenges that confront the first-time small business owner. Just raising your start-up capital can be a difficult, full-time task. Many entrepreneurs are too optimistic and feel that their start-up capital will be enough and compound the situation by using their cash flow to finance their capital expenditures.
• Poor Accounting Procedures – Bad accounting practices alone are business killers. You can easily lose track of where you are financially and just monitoring the amount of cash in your bank account is not sufficient. The ability for a small business owner to act proactively (not reactively) while making sound financial decisions is hindered by a lack of tracking and reporting your finances. Basically, you have no insight where financial trends are concerned.
The first-time entrepreneur has to jump through more hoops than ever before just to get their business up and running. Unless you are aware of these financial mistakes and learn how to avoid them, the failure of your business is inevitable.
Posted in business opportunity on Nov 30, 2013