9 Money Struggles Small Businesses Face and Ways to Deal with Them
by John Cox AuthorOut of all the challenges faced by small business owners, money management often tops the list. When surveyed, a majority of small business owners both experienced and amateurs agreed that they struggled with finances at some point of time (or rather, quite frequently). Talking about the reasons responsible for the failure, a number of factors were to be blamed.
Falling profits, stagnant business performance, and cash-flow mismanagement are some of the many causes that resulted in financial stress. But, what are the mistakes committed by business owners? Let’s discuss.
Common Money Management Mistakes and How to Avoid Them:
1. Not Following a Budget
If business owners could predict the market, there would not be any losses
to incur. But forecasting market behavior correctly doesn’t seem like much of a
possibility. Instead, knowing how much money is flowing into your firm and
where every penny goes can help develop some clarity. To achieve this,
budgeting is one of the most efficient ways. A budget will help you through
every month without much confusion about where your money is. It will tell
about the firm’s profits in detail and the need to cut down on expenses if needed.
2. Not Using Accounting Software
Not every entrepreneur comes from an accounting background. Failure to
manage the business accounts efficiently can lead to several issues that can be
difficult to deal with later. Small businesses, especially in their infant
stage, cannot afford to hire a professional accountant, mainly owing to lack of
funds. An accounting software is, thus, a must have for SMBs. Moreover, hosted
accounting software, such as Sage
50 hosting, helps business
owners to manage their accounts on-the-go.
3. Overspending
To earn more, a business needs to spend more. But, spending more than what
a firm earns is a huge red flag. It is not only derogatory for the firm’s budget;
it also leaves them with more debt than they can afford to pay. Buying extra
machinery, hiring more staff than needed, going overboard with interiors are
some of the common areas where firms might be spending more than needed.
Cutting down on wasteful expenditure is, thus, a must.
4. Not Managing Cash-flow
A vast majority of new business owners fail when it comes to cash-flow
management. But it is important to realize that not every customer will pay in
time. Follow-ups are critical if you do not wish to fall short of funds when
you yourself have to make payments. For any business to run successfully,
accounts payables and receivables need to be managed efficiently.
5. Not Drawing a Line between Personal and
Business Finances
Business owners, particularly those new in the field often share a common
bank account for their personal and business needs. There are many reasons why
this is wrong. There is a fine line between your personal and business
finances. Entrepreneurs who mix their personal and business finances often end
up struggling financially. To obtain clarity about where you stand as an owner
and as an individual, there should be two separate bank accounts, one personal
and the other for business.
6. Using Profits for Wasteful Expenditure
Profits are supposed to be saved and reinvested into your business and not
used for covering your day-to-day expenses. New entrepreneurs, in particular,
need to draw a line between their liquid cash and profits. Profits are what is
left after you are done making all your payments.
7. Delaying Tax Payments
Ignoring your tax payments is going to do you more harm than you think. It
complicates your tax situation, makes you pay a huge tax amount at once, and
burdens you with penalties. Tax software hosting solutions, such as Lacerte tax
software hosting, can help you manage your taxes efficiently. If you are
relatively new in the field, seeking professional advice can help you
understand your taxes better.
8. Underpaying or Not Paying Yourself First
Business owners need to understand that the importance of paying themselves
first. It is important to have a secure place when it comes to personal
finances. A strong financial condition is necessary for any individual. Not
paying yourself means you are falling short of finances and wrecking your
financial situation. Also, it creates an illusion regarding your profits.
Supernormal profits are a good thing, but not unless you pay yourself. There
always needs to be scope for improvement.
9. Not Researching the Market Price
What happens when you do not research the market price of your product? You
are either selling your product dirt-cheap or you are over-charging your
customers. The impact to your business in both the cases is not conducive to
growth. Charging less for your product may seem profitable in the beginning,
but can negatively impact your business in the long run. There are multiple
ways for a business to grow in competition other than keeping prices on a lower
tab. Seeking help from a professional can help build better marketing
techniques.
In Conclusion
Certainly, a business comes with a number of pitfalls. But, acting smart at the right time can help a business owner in avoiding them. Keeping in mind the above mentioned mistakes, using smart accounting software hosting solution, and taking help from professionals in the field can help a business grow successfully.
I am John Cox, a professional technical writer with specialization in cloud technology for SageNext InfoTech. I have panoptic experience in writing about QuickBooks Hosting, Sage 50 hosting, and ProSeries Hosting.
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Created on Apr 6th 2019 00:02. Viewed 411 times.