Common Financial Errors
Many businesses struggle to make ends meet and finding money to pay your employees or creditors can be a regular monthly challenge. Assuming that you started your business with a clear business plan and adequate funds in hand, there can be a handful of reasons why monetary troubles still plague you.
Set up a simple financial management programme which will keep your payments and accounts receivable in order. They will help you create invoices, send out reminders to your debtors, manage your payroll and pay your taxes correctly.
Make a point of recording each income or expense in your financial software; at the end of the financial year you’ll be able to see where your money went. Make sure your personal finances are separate from those of your business and never be tempted to borrow from either.
Incorrect resource allocation
Don’t spend working capital on long-term capital purchases – you could lose out on lower tax rates or rebates for capital expenses. Draw up an annual budget for your business and make it two-tiered: one as a guideline for the entire year and the other a monthly version of your annual budget that lists all anticipated expenses, such as materials, land and equipment.
Unplanned purchases will throw your budget out of gear. Every budget has a “miscellaneous” or “petty cash” section meant for emergencies, but relying on these allocations in your budget to buy something that is not even part of your annual plan will cause your funds to dry up before the month runs out. Purchase only those items that you earmarked at the beginning of the year or month.
Under-quoting to clients
We all know that we live in a competitive business environment and plenty of new businesses try to break into a market by offering low rates to potential buyers. You may initially grab instant market share, but relying solely on lowest prices is not a strategy viable for the long term. In the minds of customers, under-quoting opens the door for further bargaining, or raises doubts about the quality of your products. Smart pricing strategies make for a sustainable business.
Are your business finances in good shape?
Adapted from an article by Andrew Cravenho, entrepreneur.com