The Biggest Financial Mistakes New Businesses Tend To Make
by PM Today / 4/18/2019 3:37:09 PM
Starting a business is a dream many want to achieve, but that’s not to stay that it’s without its challenges. As rewarding as being your own boss can be, it’s far from an easy job. There are many roles that you will be responsible for, with the most important being managing the money. While you should never go into business purely for financial gain, profits must be made to keep your dream alive. The big issue with this is that most new business owners have no experience in business finance, and, as such, make costly mistakes. Here are seven you should avoid.
- Pricing The Products Incorrectly
Whether you offer a service of some kind or physical goods, the purpose of your business is to sell something. While you can certainly make money in other ways, most of the profit that your company generates will come from sales. This means that, if you price your products too high or low, it’s sure to cause problems. Companies who underprice struggle to make a profit from their sales, while those that overprice struggle to sell anything. It’s up to you to find the middle ground.
- Using The Same Account
Keeping your personal and company finances together in the same bank account may seem convenient at first, especially in the earliest days of your business. However, it can quickly start to cause problems. When you have your money mixed together like this, it makes it difficult to know how much belongs to you and how much belongs to your company. This can result in overspending and tax issues, which is why it’s best that you open a company account too.
- Making Big Purchases Immediately
The latest technology, the biggest office, and the flashiest equipment are all incredibly tempting when you first launch your business. However, you need to think these purchases through before making them. Some expenses are essential, but others you should hold off on for now. Instead, of buying tools, for example, you could hire them from City Hire. You can also work from home. Be as lean as possible until your business has grown enough that you can afford to splash out.
- Spending Without A Budget
When the time comes to make the important purchases you need to grow your business, you must remember to check your budget. After all, it’s difficult to know whether or not you can actually afford the extra expense unless you do. If you don’t already have a budget for your company, then you should create one sooner rather than later. This tool will show you how much money comes into and goes out of your business, which will help you to remain profitable.
- Waiting To Seek Credit
Borrowing is an incredibly common practice in the business world. Although you should always consider other options before taking out a loan, if there is a large purchase to be made or bill to be paid, then borrowing can allow you to do so. However, you must make sure that you seek out and secure credit before you actually need it. After all, lenders are much more willing to hand out cash to thriving businesses than they are to those that are beginning to struggle.
- Not Planning For Emergencies
Choosing to enter the world of business is a risky decision. There is always the chance that something will go wrong, even if your business is seemingly safe and stable. Credit can be used to cover the cost of these disasters, but only as a last resort. It’s much better that you don’t put your company into debt if you can help it. For this reason, you should start to build an emergency fund for your business, as well as invest in an insurance plan that covers the common risks.
- Hiring The Wrong People
After spending so long building up your business, letting someone else take control, even of only a small part, can be difficult. However, your company will suffer if you try to do everything on your own. That being said, it is crucial that you hire the right people for the jobs. The recruitment process is a long and costly one, so the last thing that you want to do is waste all that time and money on a bad hire. Before hiring permanent employees, try outsourcing certain tasks instead.
Money is the fuel that keeps your company up and running, so don’t waste any by making the mistakes listed above.