For small businesses, a money management or business mistake could mean the end of the company. You might be surprised to find out: managing money isn’t something that comes naturally to many business owners. Instead, they rely on outsourced professionals, take finance classes or seminars––or in some cases, they have to learn from their mistakes.
Unlike daily blunders such as sending an email to the wrong person or forgetting a meeting, money management mistakes are not always immediately obvious. By the time you realize the mistake, it’s often too late to fix. Suddenly your business has to cover an overlooked $50,000 in expenses all because of mismanaged finances. To say this puts your business in a bind is an understatement!
Here are 10 common business mistakes that may be costing your company money:
1.) Not having enough reserve cash
There was a reason your mom made you create a savings account in high school. The same concept of having “back-up cash” rings true for your growing company. Accidents happen. If your company doesn’t have any reserve funds to cover a business casualty, you are putting your company at risk. A small cushion can grow into a nice reserve if you make the effort to put a little away each month.
2.) Mixing business and personal finances
As an entrepreneur, there’s no separation between your work-self and your home-self. Your business is your life, so it’s tempting to mix the two in your finances as well. Don’t do it! Make sure your personal and business finances are entirely separate. This will ensure your budgeting, accounting and bookkeeping are correct for your business, and will keep you out of trouble down the line!
3.) Not invoicing on time
For many small businesses, a steady cash flow depends on a system that guarantees payment for services rendered. If you have no system for invoicing on a schedule and making sure collections are followed up on, chances are some client work has slipped through the cracks and you may be eating the cost.
4.) A poor pricing strategy
If you are unaware of how much it costs to produce your product/service – INCLUDING time costs in hours, you are likely losing money. It’s critical to understand your profit margins on all things you sell or you will undermine your growth potential.
5.) Not tracking employee hours for client work
Just because you don’t have hourly employees doesn’t mean time spent on client worked shouldn’t be tracked. Employee hours spent on client work is time spent on client work – which is typically billable. (Refer back to #4 on pricing). If you are guessing your price covers the amount of work your employees put in – plus all costs associated with the product/service you are producing, but you aren’t tracking the time it actually takes the employee to do the work, you are likely losing money.
6.) Not adequately paying yourself
Do your employees or contractors work for free? Of course not! So, why are you? Although in the initial stages of your business, it might have been necessary to dock your compensation, do not make this a habit. Not paying yourself is the fastest way to burn yourself out. When your workers are paid and you are not, your struggle becomes more about making payroll to cover their expenses instead of building the company you set out to grow.
7.) Not investing in your people
Just because you’re willing to work for little to no pay does not mean your employees will do the same. Making time and spending money on adequately training employees pays big dividends in the long run. Your employees are an investment in your business so it is not an area where you can skimp.
8.) Doing too many things yourself
There are some things you do better than anyone else, which is why you’re a business owner. But you can’t build a business around your specific skill set, or you are a consultant, not a business. The beautiful part of small business ownership is that there are a lot of other owners out there who have started companies based on their own skill sets so many of the things you struggle with can be outsourced to them!
9.) Working 24/7
Work hard and you’ll reap the rewards, right? Not always. While good work ethic is necessary, never taking a break stagnates your creativity and eventually leads to burnout. An often overlooked consequence of the owner working non stop is that employees tend to feel guilty for not working as many hours and they also end up burned out! If everyone is burned out, clients will eventually feel it and they may stop referring you – or worse, stop doing business with you altogether.
10.) Taking too many risks
You’re an entrepreneur. Taking risks is part of your nature, right? Yes, but now you have employees to think about and their incomes are on the line every time you take a risk. If you don’t have the capital to cover an expense, don’t assume that you’ll make it up later. You never know what may happen next month!
Are you guilty of any of these business mistakes? If so, it may be time for a change. Instead of waiting for a financial crisis to occur, take action today to cut these mistakes out of your business process!
Virtual BeanCounters serves entrepreneurs with an empowering finance division so they can focus on innovation and creating value for their clients. We believe you can accomplish the business of your dreams a lot easier with a professional accountant on your team! Contact us by phone at (913) 649-1040 or click here to visit our Contact page.