Small businesses have a big share in the growth of an economy. They may not be visible at a large scale like industry giants but they have an equal share in the backbone of the economy. Many people who fail to perform good in job can get a new start with a small business. Easy to start and easy to handle, small businesses are great rescuers. However, you cannot deny the fact that the need of money management is equally important as it is in a big business. But sometimes, small business owners may be by mistake, or by an inadequate experience fail to manage funds and then face huge money crisis. If you also have a small business then you should also know about the common mistakes that small business owners usually do.
1.Spending too much money too soon
Money attracts more money and this is why the business owners invest and spend money. But you should always know the right amount and right way to spend money. Investing too much money in a short time can be a financial suicide for your business. An offhand decision can make you regret later.
2. Overestimation of future sales
Anything that pairs with the word ‘over’ becomes exaggerated and exaggerations are not good in life and business. Overestimating future benefits and sales may make you become careless and you may manufacture more products than what actually in demand in the market. Don’t do this, first know the mood of the market, study the challenges, keep a practical approach and then do a calculation of the estimated sales. In business, before profit, you need to think about the possible loss and they should prepare a back-up plan.
3. Not paying to yourself
Why not get some income from your business. Always pay to yourself, that money is your income which can come to use in tough times. It is the fruit of your hard work and also the tool to Improve your life. Always get a share from profit, the percentage may vary but take do it regularly.
4. Failure in management of cash flow
This may look simple but having control of the income and outgoing of business is not so easy. There should be a record of every penny and every reason for which you spent the money. Situations happen to like – delay of payments from a client, improper sales projection etc. Cash flow is the daily fuel for the business and you have to create a strategy for that. Keep eyes on income, expenses and pending payments. Take follow up of pending payments. Leave no escape window for any financial flaw.
5. Not analyzing prices in a proper way
You are standing in the market with many to countless other competitors. Pricing is the biggest factor that can attract as well as distract the customer. Overprice can kick you out from the race, underprice can cause you loss. Why not stay somewhere in the middle or provide value for money with some special unique feature.
6. Mixing business and personal expenses
Oh, that was a HUGE mistake. Mixing both the expenses makes it difficult to track your household and business expenses. Keep two different things separate. Your business life should not affect personal and similarly personal life should not be allowed to interfere in business life. For business, open a separate checking account that has different payment services. Set boundaries and never cross them.
7. Mismanagement of business deductions
Owning your own business is beneficial as you can always decide what to deduct from the expenses. When you lose balance on this aspect, money mess intrudes. It is possible to make the list of necessary and unnecessary expenses. Try to increase the list of unnecessary expenses as much as possible. However, do not do compromises in the name of deductions. In the flood of expenses, you do not realise how much amount goes every day. Keep a record of income and outgoing.
8. Skipping tax payments
Why? Why to do something that can cause a huge mess in the coming days? You only invite penalties and late fees, which shakes the roots of your financial management. Do not do this, pay taxes on time and forget not to continue this habit. This is the case with many business owners.
9. Confusing profit with cash
The cash you have available is for the use for the enhancement of your business. This is not profit as profit is something that remains after paying of all the expenses. Do not feel over-confident on those fat bunches of currency, one big expense and some of them will be invisible. Net income and profit is what you get after all outgoings are paid off.
10. Not re-investing money in the business
A business is the long-term process that demand re-investment of money. You need to keep providing the fuel, once it stops the business stops working. Keep investing with a calculative approach. Do not invest all the money but at least a considerable part.
The above 10 ways are practical and simple to follow. Try them, apply them and you can see a big promising change in the money management.