Money makes the world go round, but handling finances are one of the most challenging tasks that can easily make or break a business. You might think that things can be pretty straightforward – you make money, you get paid, you invest a part back into the business and the circle repeats itself.
However, there are some mistakes that so many businesses make that are detrimental to their success, so let’s go over them and see what mistakes you should avoid at all costs while handling money.
Investing Too Early
There’s a lot to be said about how much and when you should invest in growing your company further. But the fact is that most people don’t know when the right time is. This is an art, but the one thing you don’t want to do – especially if you’re a newly opened small business – is to invest too early. You have a good month or two and you start expanding your business immediately. Always stick to your business plan and don’t invest your money until you’re very certain that there is space in the business and the market to spread out your wings a bit. Your core business must be completely protected and supported first.
Not Looking at the Big Picture
Continuing with the same mindset of investing, you can’t tunnel vision in business. Focusing on one specific part of the company or production that you want to invest in or grow while ignoring all the other moving parts, will be the wrong move. CPA expert Alan Lefkowitz believes that it’s important to look at the big picture in business and keep in mind all of the company’s goals and orientations when investing. So if you’re the one on top making the money decisions, always consult with the heads of other departments to make sure you have all of the information.
Not Paying Yourself First
So many small business owners make this mistake. It might make sense – you pay yourself less and invest more into the business to grow it and make more money the next month. But this isn’t the right move. Your finances are just as important as the business, and not only will it help you maintain a steady life, but it will give you the peace of mind to focus on the business and make the right decisions moving forward.
Not Having a Good System
You’d be extremely surprised with just how much money falls through the cracks if you don’t have a good system in place. Every penny that comes in or goes out of the company would be written down and tracked. This will not only prevent losses, but it will help you understand the patterns and trends that will further help you invest your money smartly.
Keeping Your Business and Personal Finances Joined
If you’re a small business owner, it’s a common mistake to just join your personal and business accounts and treat everything the same. Even if you have a few employees, you might pay them through your account. On the surface, this might look like a good idea, because you can use your savings to help out the company and you can avoid the extra work of making the transaction from your business to personal account, but in reality, this will only blur the lines between work and personal life and might make you lose track of how much you’re earning and how your company is doing. Do yourself a favor and split them from the start.
Not Having Enough Capital
Starting a business is expensive, and you can’t just jump in without any support. You need some capital, a sum large enough to keep you afloat until the business starts making some money. It’s very normal for a business not to be profitable from the start until you build up a customer base, and if you don’t have enough capital to survive that period, you’ll go under before you’ve begun.
Spending Too Much
On the flip side of not having enough capital, there’s spending far too much and just hoping that throwing money at the business will make it thrive. It’s so important to remember that just having lots of investments doesn’t make a business good – it only accelerates whatever path it was already on. So, be patient and wait until your business starts returning investments before putting more in. The growth of the business should come from the inside profits, not from outside additions, especially at the beginning. Stick to your business plan and don’t try to jump ahead using money.
So whether you’re a small business owner wearing many hats every day, or a CFO that is in charge of all the finances of a major corporation – these are the pitfalls you must avoid to be successful and grow your business further into the skies. Of course, you should trust your gut on some decisions, but you should also be very analytical and think things through.
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