All businesses start off as a no-fail idea based on a brilliant product or service. But with my long years of experience of bookkeeping in Brisbane, I saw a lot of those faultless ideas and perfect products soon nosedive due to bad business financing. An entrepreneur should not only be looking into the front end of the shop. Paperwork, bookkeeping and the backend of the business should also be taken care of.
Here are the most common mistakes in small business finance to avoid;
Too heavy overhead
Do you need that big office or three persons manning the counters, or the other delivery guy on standby? When starting out, manage your overhead to minimum. If you can use the loft of the shop as office space, use it. Instead of hiring full time staff, look into other options, like outsourcing or hiring part-time. Most successful entrepreneurs worked on the business themselves, even after their business have taken off and can already afford to hire people.
Unmanaged accounts receivable
Selling merchandise on credit is common. But when you fail to manage your accounts receivable, that’s when you start to have problems with your cash flow and eventually your overall business financing. Remember, as long as you are operating a business, your expenses are piling up. You are going to need cash to pay for your employees, the utilities, and the cost of manufacturing the products. Do not forget the very basic rule of entrepreneurial success – cash inflow should be higher than outflow.
I have another article on managing accounts receivable here.
Pricing too low
Many startups tend to price their products or services lower than the average. This is a good strategy in attracting customers and encouraging volume sales. This however becomes a mistake when goods are priced below their actual worth and market value. If it costs you $10 to produce one product, do not sell it for $9.99. If people are willing to pay $15 for it, keep your price close to it. Pricing too low also has its consequence. Consumers who look for value might consider and try using your product. But those who value quality will doubt the integrity of your goods and stay away from it.
Borrowing money without specific purpose
As myself, many bookkeepers in Brisbane have seen good businesses struggle with finances because of poor debt management. Banks tend to be more accommodating in giving loans to prospering businesses, especially if they have already established a good credit standing. What could be wrong with that? All loans come with an interest expense, which adds up to your overhead. So if you don’t have anything definite or specific use of the money, forego the offer. It will still be there when you need it.
Not paying on time
Taxes, loans, and other payables should be met when or before they are due. Some lenders and even the government give incentives in the form of rebates or lower interest rates to those who pay on time. Late payments mean full interest costs plus additional charges and fees. Paying is inevitable if you are to continue with your business, so why not pay on time and take the opportunity to save up.
Combining personal with business finances
Another common financing blunder for business, usually in small enterprises is the combination of personal and business accounts. Any business, no matter how small, should stand as a separate entity. It should have a name, its own assets and liabilities, and a financial account separate from its owner’s. It’s true that you own the business and technically own the cash too. But how can you distinguish your personal finance to that of the business? How will you know if you are overspending personally or otherwise?
Bookkeeping in Brisbane requires business owners to have separate accounts for their business and personal finance. It does not only simplifies the accounting and bookkeeping procedures, it also give you a clear picture of how your business is performing.