Can you believe that close to half of all small businesses close within the first five years?
Most people dream of starting a business that they can enjoy for the rest of their lives and maybe even pass it down to their children. With so much money on the line, it’s crucial to do everything you can to prevent becoming a part of this unfortunate statistic.
Do you want to become an expert at business finances so your company can flourish? Keep reading this article if you’d like to learn the top money mistakes that you have to avoid if you want to be successful.
1. Rushing Into a New Business
If your business is still an idea, then the last thing you’d want to do is rush the planning process and run into big problems. As exciting as it is to become your own boss and pursue your passions, you have to create a detailed business plan. Most businesses have large startup costs and you need to figure out how you’ll survive this rocky beginning.
Have you shopped for loans that provide fair interest rates? Do you have enough money saved to cover several months of living expenses? People who’ve planned for every emergency have the tools they need to survive.
2. Cutting Costs That Affect Your Products or Services
One of the best business finance tips is to always prioritize the customer’s experience. If people aren’t happy with your products or services, the chances of them going to a competitor are high. It’s good to stay humble so you never make any decisions that decrease the quality of your goods or services.
For example, one way that restaurants try to lower their expenses is by downgrading their ingredients or making portion sizes smaller. You may be able to trick some customers, but there are plenty of others who will be upset when they notice the difference. It’s better to brainstorm other ideas that can lower your expenses.
3. Taking on Too Much Debt
Some level of debt is almost inescapable when starting and maintaining a business. However, you can reach a point where interest buries you and cancels out any of the benefits that a loan or credit offers.
Be as creative with your finances as possible so you can minimize your debt and make every dollar stretch. Try to pay back loans that have the highest interest rates first.
4. Not Tracking Business Finances
One of the most frustrating financial mistakes that you’ll pay for down the line is neglecting your bookkeeping duties. Businesses have to pay quarterly taxes or else they get hit with cumulative interest in April. The worst-case scenario is raising red flags with the IRS and getting audited.
To make life as simple as possible, be diligent about tracking your income and expenses. Not only will this make taxes less painful, but you can also remember to deduct certain items that will increase your profit. It’s worth getting professional bookkeeping services so you can have peace of mind.
5. Using the Same Financial Planning Strategies Each Year
You should feel proud of yourself if you’ve managed to create a strong business plan that has allowed you to survive your first year. Moving forward, you need to be open to adapting your financial strategies.
What worked last year may not be relevant in the future. Keep a close eye on your income and expenses so you can figure out what’s working and what’s holding you back.
6. Choosing a Bad Storefront
Unless your business will be 100% online, you have to put a lot of thought into your storefront. Many business owners describe this decision as a tough balancing act.
You need to be in a convenient location that can attract the highest amount of visitors. These popular locations tend to come with higher rents, though. Assess your budget and make sure that you don’t rent in an area that costs too much.
7. Underestimating the Value of Marketing
The reality of the business world is that you need to spend money to keep up with your competition. Having the best products or services isn’t enough to thrive in this hectic environment. One of the most effective ways you can gain new customers and build loyalty is by marketing your company.
The most lucrative marketing campaigns are the ones that are multi-pronged. Building a user-friendly website, writing blog articles on a regular basis, interacting on social media, mailing out flyers, and giving out coupons are just a few of the many awesome ideas you can use. You’ll never regret spending money on marketing since the returns will be impressive.
8. Expanding Unsustainably
Once business owners get a taste of success, their first instinct tends to be to expand so they can increase their income even more. In some cases, expansion is necessary to continue meeting the demands of your customers. However, lots of businesses rush this process and bite off more than they can chew.
If you’re running a restaurant that doesn’t have enough seating to accommodate visitors, then you don’t have to jump into opening a second location. Consider solutions like expanding your takeout and delivery services or having a refrigerated section in your store that has take-home meals that people can heat up.
Every Business Has to Avoid These Financial Pitfalls
Learning about mistakes people make when it comes to business finances should empower you rather than deter you. Now that you’ve read this guide, you can get ready to run the most successful business possible while saving yourself plenty of headaches.
Getting professional help will allow you to focus your energy on tasks that complement your strengths. From tax planning to CFO services and beyond, Bennett Financials is here to support you and your business. Contact us to learn how we can help your business reach its greatest potential.