Starting your own business is a huge accomplishment – but it also comes with a lot of responsibility! One of the most important aspects of owning a business is financial management. Unfortunately, many new business owners make costly mistakes in their first year that can have a negative impact on their business and even on its survival.
In this post, we are going to highlight some common financial mistakes made by business owners and provide advice on how to avoid them!
Common Financial Mistakes.
Not having a clear understanding of the business’s financial situation.
It’s important to know exactly how much money you have coming in and going out each month and to plan ahead for this. This will help you make informed decisions about where to allocate your resources.
Not separating personal and business finances.
Keeping your personal and business finances separate will help you stay organised and avoid financial complications down the road.
Not having a budget.
A budget will help you track your spending and ensure that you are not overspending. It’s also important to periodically review your budget to see if there are any areas where you can cut costs.
Not putting money aside for taxes.
It’s important to set aside money each month so you can pay all your taxes on time. This is incredibly important particularly because the forbearance we have seen in recent years has ended and HMRC is once again a preferential creditor, plus if you don’t pay them on time, you can face some pretty hefty penalties.
Using a credit card for additional funding.
While using a credit card can be a quick way to get additional funding, it’s important to be aware of the interest rates and fees associated with credit cards. If not managed properly, credit card debt can quickly spiral out of control.
Not understanding profit margin.
New business owners do not always fully appreciate how profit margins work, assuming that using a sale price based on a mark-up of the cost price is the way to value their goods and services, but a good understanding of the importance of Gross Margin, Fixed Costs, Net Profit and Break Even, and how these can impact is vital to grow a successful business and make informed decisions.
Not seeking professional help.
Following on from the above, if you are not confident in your own financial management skills, it’s important to seek out professional help. A suitably qualified and experienced advisor can help you make sound decisions about how to best manage your company’s finances.
Try to grow too quickly.
While it’s important to have ambitious goals for your business, growing too quickly can put a strain on your finances. It’s important to grow at a sustainable pace so you don’t overextend yourself financially. This can be in terms of both business expansion as well as product expansion.
Making large and unnecessary purchases.
It’s important to be mindful of your spending and avoid making large purchases that are not absolutely essential for your business. Before making any big purchase, ask yourself if it is something that you really need and if it is the best use of your resources.
Failing to plan for the future.
It’s important to have a clear understanding of your financial goals and to plan for the future. This includes things like saving for retirement, as well as setting aside money for unexpected expenses.
Not having business insurance.
Business insurance is important to protect your business in the event of an accident or unforeseen circumstance. This can help you avoid financial ruin if something were to happen to your business.
Delays in invoicing.
Many business owners get caught up in the day-to-day activity of their business, and often forget to invoice! Sending properly prepared invoices in a timely manner is important to ensure that you are paid in a timely manner. This will help you avoid any cash flow problems and keep your business running smoothly. This also includes making sure that you document the sales process, with (where possible) written orders, proof of delivery and sign-off, and that customers are fully aware of your business’ payment terms and conditions.
Not effectively chasing for payments.
This is common among many businesses big and small, but it’s important to make sure that you are getting paid on time. Effective credit control is essential, and you should chase up any payments that are overdue. This can be done via email, phone, or even in person if necessary.
Not having a realistic sense of how cash flows in the business.
This is one of the most common mistakes made by small business owners and can have a very detrimental effect on your business. It’s important to have a clear understanding of your cash flow so you can make informed decisions about how to best manage your finances.
Failing to negotiate with suppliers and creditors.
You may be surprised at how willing suppliers and creditors are to negotiate payment terms. It’s always worth asking for a discount or extended payment terms – you may be surprised at what you can achieve!
Invoice finance can help.
Starting a business is no easy task! It takes a lot of hard work, dedication, and time to get it off the ground. In addition to all of those challenges, business owners also have to juggle the financial responsibilities that come with running a business. Making mistakes with money can be costly and set your new business back by months or even years.
If you are struggling to achieve and maintain a healthy cash flow, then entering into an invoice finance agreement may be the solution. At Partnership Invoice Finance not only do we provide immediate funding against your client’s invoices, but we also want to see your business expand and succeed and will take a vested interest in helping you to achieve that.
We offer invoice finance to start-ups, SMEs and those requiring funding up to and in the region of £750,000 and sometimes even more. We will expertly manage all aspects of your sales ledger management function, from the moment that you notify us of the sales transaction, to the point when the debt is paid.
Contact us today to learn more about how we can help ease your cash flow and plan for the future of your business.