For many small business owners who are either new to entrepreneurship or struggling to adapt to some of today’s more innovative business technology, it’s easy to find yourself neglecting some very important financial practices essential to keeping your business on top of your competition in a fast-moving world.
Specifically for those who are newer than others when it comes to starting and maintaining a business, some tasks, which may appear to be of lesser relative importance to other responsibilities, can quickly start to hurt your business in some serious ways.
With that in mind, we’ve put together a list of some of the most commonly seen mistakes small businesses are making as a result of being overworked and undereducated about what matters most as you begin a business venture
Undercapitalizing early on
A major issue, which can plague an entrepreneur’s efforts before they even get off the ground, is having enough money to cover themselves in the short term. Raising initial capital can be extremely difficult unless a number of financial pieces fit together at the same time. While being optimistic about your business is certainly a necessary early motivator, over optimism often clouds new business owners to the reality of how well they can expect to do during the first year of business.
Relying on your business to be self-sufficient within a year not only demonstrates a lack of practical business chops, but also can potentially lead to financial disaster if lenders are unable to collect on their investments when they expect to. Starting with sufficient initial capital is essential for businesses that experience early turbulence.
To be confident you can avoid this problem, try to mitigate unrestrained optimism about your product or service and be as conservative as possible when projecting your business into the short-term future. If you’re new to business, value the advice of those who have been in your shoes and pulled themselves out of the dark and into long-lasting success. At the very least, make sure you’re well-aware of your initial expenses and gather at least double the capital you project yourself to need.
Insufficient accounting considerations
Tracking your finances is a task that never ends. For those trying to juggle everything at once, it’s often one of the first business metrics to fall by wayside only to be noticed when it’s too late to reverse a negative trend. For business owners, glancing at your bank statements is not enough.
Although you may be entering the market with a ridiculous amount of capital in the bank, turning a blind eye to your cash flow can turn a small stream into a waterfall of lost money.
If you’re too busy to keep track of your books as well as your need to, hiring a bookkeeper either in-house or outsourced just to run basic financial reports can go further than you think. Accounting is much more than number crunching and calculations––it’s what allows you to track your performance with incredible accuracy. Seeing where cash is spent and projecting your growth into the future are two of the most essential parts to keeping a small business afloat in a turbulent business environment.
Poor resource allocation
Capital is meant to be spent; the trick is to know what to spend it on so you can start generating real revenue. When it comes to doling out your initial investments, carefully weigh the cost-benefit of everything decision you’re making.
By being smart with your resources, you can easily stop yourself from overspending before it starts to unbalance your cash flow. Before making a considerable investment in an item or service you’re unsure about, ask yourself if you can live without it––you might be surprised how little you actually need.
If you’re looking for a reliable accounting or CFO service, contact our start-up accounting and CFO services experts.