Regardless of whether or not you’re good with figures, as a small business owner, you need to manage your finances if you desire success and growth for your new venture. The majority of small businesses that fail do so due to poor accounting and cash flow, which renders their ability to process unviable.
You don’t want this to be you; you want to be successful, which means you need to avoid some of the more common mistakes small business owners make regarding their finances. These could include not having an emergency fund, not diversifying payments, or not using accounting services.
Not Having An Emergency Fund
Having an emergency fund is a surefire way to improve your chances of success. As a small business, ideally, you will have an emergency fund to cover the entirety of your predictable and regular expenses for three months in the face of financial uncertainty or economic downturn. For extra cover, 6 months can serve you well and allow you to ride out the toughest of climates, but 3 months is the minimum you should have. If things go wrong and your cash flow dries up, not having an emergency fund can lead to immediate failure. On the other hand, having this fund will support you, provide a safety net that can prevent immediate failure, and give you the leeway to try to get things moving in the right direction again.
Not Diversifying Payments
Being able to accept a diverse range of payments and enabling the customer to pay however they prefer is not just a convenience; it’s a demonstration of your adaptability and customer-focused approach. Limiting payment options for transactions or invoices to be settled will result in people going elsewhere to get what they need and who can offer the right payment method for them. At a minimum, you need to start accepting credit card payments and moving away from being a cash-only business. Integrating invoicing and payment processing technology will enable you to increase the type of payments you can accept and improve your payment processes for a smoother transition, showing your adaptability and customer-focused approach.
Not Using Accounting Services
Thinking you can do it alone and you have a handle on your finances, incoming outgoings, day-to-day bookkeeping, etc., is a recipe for disaster. Even if you are indeed a whizz at finances, getting expert help and accounting software to facilitate improved accounting can be worth the investment. This support will ensure that you know how you’re performing and will help you meet requirements for paying taxes, etc, giving you the confidence and peace of mind to focus on other aspects of your business.
Losing Control of Expenses and Overheads
There will always be expenses and overheads within a business, and this is standard for every single business. However, losing control over them and not restricting expenses to a percentage of sales can be detrimental. You need to find a benchmark you feel comfortable with and set it to avoid things spiraling out of control. You need to apply a limit to both the percentage of sales that goes to overheads and the cost of goods sold to a benchmark, too. This will help you to retain control and avoid unnecessary overspending.
