A variety of reasons can lead to the failure of a business endeavor. It’s sometimes due to a lack of customer interest, and other times it’s due to poor marketing strategies. But arguably the most lethal cause to company failure is a lack of financial management skills.
“[Financial errors] are often the result of poor financial planning on the front end of launching a firm,” said Marc Price, business author and director of operations at ExpertBusinessAdvice.com. “The real costs of starting a firm are often underestimated by entrepreneurs. As a result, without adequate finance, dealing through the first growth pains that may occur after the doors have opened may be jeopardized.”
Price, who is also an entrepreneur, understands how easy it is to get into a financial quagmire. Small business owners make five frequent financial management blunders, according to the co-author of “Business Finance Basics” (Nova Vista, 2014).
- Having insufficient monetary reserves. Entrepreneurs understand that they will most likely require money to invest in the start-up of their firm, but it may take several fiscal quarters for the company to generate a consistent revenue, much alone earn a profit. As a result, make sure you have enough operational funds to get started. Don’t be fooled by wishful thinking that the money will magically appear.
- Being reliant on plastic. For early-stage survival, some small business owners are obliged to use credit cards, especially if they haven’t prepared adequately. High interest rates and yearly fees are associated with credit cards. Having enough operational cash, whether from a small company loan, a capital injection, or your own funds, can help you avoid going into credit card debt.
- Combining personal and company money is a bad idea. It may be tempting to step over the boundary, but maintain these two entities distinct. It simplifies accounting, budgeting, and reconciling two sets of records, as well as calculating the business’s real earnings and losses.
- You’re underpaying yourself in compensation. It may seem like a good idea to put all of your revenues back into your firm in the early phases of your company. However, failing to compensate yourself along the road may jeopardies your personal money and financial status.
- Not having a well-organized receivables system. Payment conditions should be printed on the back of every invoice, and payments should be collected in a logical manner. Make sending timely reminders a part of your daily routine.
Price advises new and aspiring entrepreneurs to seek guidance from other business owners and financial specialists.