Many entrepreneurs become dismayed after running their business for some time. Despite an impressive business idea, they struggle to streak ahead in the race of competition. In order to gain momentum, you need a constant flow of cash. It is fuel for your business. While it is vital to make as many sales as possible, you must have earmarked cash. This will help you keep the ball rolling when your business gives you a hard time.
Unfortunately, many businesses fail to stash away sufficient cash to meet their business expenses. When their businesses struggle to make sales, they eventually realise that they do not have enough money to meet day-to-day business operations. This compels you to take out a business loan, and over time, you find yourself with a lot of business debt.
You do not have to rely on a business loan to meet your business expenses if you manage your finances smartly. However, it does not mean that you will never have to be dependent on external funding sources, but you can avoid racking up business debt.
Financial mistakes that every small entrepreneur must avoid
Here are the financial mistakes that every small entrepreneur should avoid:
- Poor cash flow
One of the most common reasons why small businesses struggle to hit the ground running is that they fail to have enough cash flow. Whether your business is making sales or not, you should have a healthy flow of cash. This will provide your business with money you can use to meet various business expenses.
A lack of cash flow is not always a result of poor sales. It is sometimes on account of late payments from your customers. Unexpected expenses also dip into your earmarked reserves. According to studies, every year, more than 30,000 businesses in the UK shut down due to poor cash flow.
Experts enjoin consulting a business expert and coach who would help you forecast cashflow requirements. Based on that, you can track how much cash you need every month to avoid falling behind on payments. At the same time, you should be protective of your finances.
For instance, if you decide to lend money to a company or sell goods on credit, you should carefully check their repayment capacity. Many businesses go downhill because they are in debt due to unpaid accounts. You should also get money up front whenever possible. If you sell goods on credit, the payment term should be shorter, not more than 30 days. Make sure you receive payments from your clients before payments to your creditors are due.
Rely on loans and credit cards only when you need money for unavoidable business expenses, and your business is moving slowly. But if you have already taken on too much debt, you should consider using debt consolidation loans online.
- Ignoring tax planning
Many small business owners fail to consider the importance of tax planning. This is crucial if you want to save money. When you invest money, you need to ensure that you are able to save money on capital gains. Improper tax planning can lead to financial complications.
The most common mistake is that you do not register for VAT. There are some allowable expenses that you do not have any knowledge about. You often do not know the impact of missing deadlines. Loads of businesses end up paying heavy penalties each year due to late tax payments.
You should consult a tax expert. They will help you how you can manage your business expenses in order to reduce the burden of taxes. Use software to track your expenses. Have a receipt for each expense. Even the tiny expenses are important. You should have a record of each expense if you want to obtain tax deductions.
Be smart with your investments. Make sure that you invest money in a way that does not attract too much tax on capital gains. An investment expert and tax planner can help you achieve your goals. Make sure that you strictly follow the deadline. Missing the deadline will attract a penalty.
It is always suggested that you should earmark some cash, usually up to 30% of your income. Your tax planner can help you decide how much money you should have earmarked for it. Seek some advice from your accountant, too.
- Not being proactive
If you want to grow your business, you will have to be proactive. The business world is extremely dynamic. A rule of thumb says that you should try to think innovatively and creatively. You will have to evolve your products so that you do not lose your customers. As an acute business person, you must know the pain points of your customers. Their needs keep changing and evolving.
You will have to be proactive in order to avoid losing your customers. You should be able to provide your customers with a product before they actually realise that they need it. Most of the time, businesses copy products and services that their competitors offer. This trend should not be followed because it will harm your business in the long run.
You should rather try to set your products and services apart from your customers. Identify what your customers are looking for. What are their pain points? Is it possible to make your product unique? Can you provide extra features to your product to make it more advanced?
Being proactive is the key to a successful business. You should be able to react before your competitors do, and this is possible when you do a lot of research about the market and your consumers.
The final word
If you want to make your business successful, you should try to ensure that you identify your target audience. Keep tracking your expenses, so you do not end up borrowing unnecessary money. This is the best technique to maintain a stable cash flow.
In addition to maintaining proper cash flow, you should try to plan taxes. Consult a tax planner who would help you save taxes on capital gains.
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