We all know how important money is for starting and growing a business, but things aren’t always so straightforward when it comes to managing our finances. The best way to avoid running into financial difficulties is to find out where others have gone wrong. So, let’s take a look at the 6 biggest money mistakes small business owners commonly make.
1. Inadequate Funding
Whether you’re just starting out with your business or you’re in the process of expanding, the right form of funding is crucial. Undercapitalization in terms of equity or investment can expose your company to greater risk in the event that seasonal slowdowns, unexpected setbacks, or increased competition catch you out. At the same time, failing to shop around when you need a small business loan is likely to result in higher fee and interest rate payments.
2. Single-Sourced Income
Some small business owners make the mistake of relying on one or two sizeable customer accounts to provide the bulk of their income. But this eggs-in-one-basket approach can be hazardous to the financial health of your organization. No company, regardless of size or longevity, is immune to the threat of potential cash flow issues. So minimize the odds of having client money problems suddenly become yours by consistently expanding your customer base.
3. Excessive Hiring
Entrepreneurs have a reputation for wearing too many hats – but learning to delegate does not include hiring more staff than your business can afford. The expenses associated with employing others are steep (think recruiting costs, CPP and EI contributions, and workplace infrastructure for a start), so make sure that new hire will be worth the investment. You should also take steps to monitor and control employee spending once you have welcomed others onboard.
4. Neglected Accounting
Because every dollar counts when you run a small business, your approach to bookkeeping and accounting matters a great deal. Some of the areas where companies tend to fall down on the job include:
- not making the effort to prepare and track a solid financial budget,
- failing to properly forecast their revenue, and
- neglecting to stay on top of their bills and expenditures
Canadian businesses fail for a variety of reasons, but poor planning and failing to get money issues sorted rank right near the top.
5. Reluctance to Outsource
A lot of business owners mistakenly believe that taking advantage of what outside professionals have to offer is an expense that a) they can’t afford, and b) they can easily do without. But the reality is that investing in services like marketing and web development has the potential to increase both clientele and income. Working with an accounting firm, meanwhile, can literally save your business money by helping you capitalize on tax advantages and avoid mismanaged finances.
6. Poor Retirement Planning
You may be years away from retirement, but without an employer pension to help pave the way, it’s never too soon to start planning your future. This is especially true for family-owned businesses where succession planning, evolving business visions, and governance challenges often vie for attention with financial matters. Don’t join the ranks of entrepreneurs who leave their post-business lifestyle considerations until the last minute. Taking a proactive stance toward financial planning will ensure a smoother exit when the time comes.
Informed financial decisions should be one of your top priorities as a small business owner. By learning as much as you can about what not to do, you’ll have a better chance of avoiding costly money mistakes and securing success for the long term.