5 Financial Pitfalls that Small Businesses fall into and how to Avoid Them.
As a small business owner, you are no doubt super busy ensuring the smooth day-to-day running of your company, however, without realising it there are many financial pitfalls you can easily fall into. In this blog, we will go through the top 5 most painful financial mistakes small businesses make and how to avoid them.
1. Not having a solid financial plan or planning forward.
Small business owners need to have a comprehensive financial and non-financial plan to avoid making expensive mistakes not only in terms of start-up costs, suppliers, and customers but also the general direction and aspirations they have for their business. You are never too small to plan.
Many small business owners don’t have an idea what they want to do with their company in the future or where it is going, so they don’t know what steps to take next. Planning for how you want your business to grow, what it will look like in the future, and the predicted financial costs involved will help further down the line.
As the old saying goes “Failing to Plan, Planning to Fail”
2. Not saving enough money for contingencies or emergencies.
Small business owners struggle to maintain a steady cash flow and therefore saving money for any expected emergencies (there will always be one or two) is near impossible. This means that when problems arise, they don’t have the financial stability to fix them, and it can end up landing them in deep water, putting considerable strain on the business.
3. Overspending on products and lacking a budget or not sticking to it.
It’s so easy when you are starting a business, or as a small business to get carried away with overspending on products and even equipment that you don’t really need. You need to have a clear idea and budget for these things and ensure that the budget is stuck to as closely as possible, otherwise, you can find yourself paying the price for them as they eat away into your cash flow.
4. Not knowing about employee and contractor obligations.
All businesses regardless of size have employee obligations that they must meet when they have staff or contractors working for them. It’s crucial that you know what Tax, PAYE, and Pension payments you need to budget for. If you don’t factor these employee costs into your financial business plan, then you are likely to have large and unexpected bills to pay plus, the danger of facing an increasingly unsympathetic HMRC.
5. Unable to maintain a stable cash flow.
The fifth, and most problematic, pitfall is businesses do not immediately fail because they are unable to make a profit but, they do fail very quickly if they are unable to generate positive cash flow regardless of future profits. The pressure on cash flow can be for many reasons as mentioned above in points 1-4 however, another huge issue that small businesses face is the invoices you have raised have yet to be paid resulting in a delay in crucial funds going into your business. This in turn then leads to you struggling to pay your own bills and, potentially incurring overdue payment charges and fees as well as experiencing a loss of confidence in your business from your suppliers.
Why stable cash flow and effective credit control is so important
For all businesses to succeed regardless of their size they need to have a steady and stable cash flow. This ensures that the business can fulfil its financial obligations and plan for growth. To enjoy real success small businesses must focus on maintaining a stable and steady cash flow.
If you are having issues maintaining your positive cash flow and are looking for outside assistance then invoice finance is a flexible and trusted solution that many small businesses can use to help them through the cash gap, taking away the financial worry of poor cash flow as well as providing valuable credit control management.
What is invoice finance?
Invoice finance is not a traditional fixed term, fixed amount loan, but a dynamic cash flow management system that keeps funding your business at a pace with rising sales levels with the added advantage of credit control at its best (for those using the factoring service). Imagine having the peace of mind knowing that your credit control is in hand ensuring invoices are paid as and when they fall due, and that your cash needs are met in advance of these invoices being settled. Your business can continue without cashflow anxiety, payrolls can be met, stock ordered, new contracts entered into, and cash for growth acquired. Today it’s cash flow, tomorrow the world!
People previously believed that invoice finance carried more risk than traditional finance, that it was expensive and an option for those with no other alternative. This certainly isn’t true today. These days invoice finance companies, and particularly members of the UK Finance are accredited reputable companies’ who offer their clients a viable funding alternative offering security, stability flexibility and access to cash when they need it.
If you need a flexible line of credit to help manage cash flow, then invoice finance is an important consideration for your business. Why try to do everything yourself when you can enjoy access to professional outsourced credit control, 5 days a week throughout the year – all this and access to your cash when you need it.
How Partnership Invoice Finance can help.
We want to help your business grow, which is why we offer invoice finance to start-up SME’s and those requiring funding up to, and in the region of, £750,000. We are a secure, stable, and reputable lender who offer our clients greater levels of transparency and control.
Entering into an invoice finance agreement is a fantastic way to get access to your money without giving up any equity or personal assets and allows for long term growth rather than short-term gain. Appointing an accredited lender to manage your invoice finance is a big decision – one that you need to get right.
Contact us today so we can discuss your options.