Any financial decision – great or small – can have a significant impact on the long-term viability of a small business, so it’s important to think hard before you act. Here are some fatal financial mistakes to avoid so you can continue to enjoy a rewarding and fulfilling business career.
1. Pocketing All Your Profits
Small business owners can make a habit of simply pocketing all their company’s profits as income. However, failing to reinvest a portion of earnings can be potentially devastating for business growth.
Reinvesting every penny may not be prudent either, as many small business owners rely on earnings for their basic income, so it’s important to put a calculated portion of business profits back into the business. This can then be used for things like expanding assets, growing marketing and advertising budgets, extending inventory and hiring staff.
2. Taking Too Many Risks at Once
Sometimes high-risk decisions can really pay off, but too many risks at the same time with no backup plan can signal financial disaster. Instead, opt to minimise business risk as much as possible.
This could mean reviewing internal controls, insurance policies, business debt, employee safety and technological security. It’s important to develop a risk management plan and review it periodically, even if it means hiring an external consultant to provide professional advice and investigate any weak spots.
3. Poor Income and Expenses Tracking
There’s nothing more stress-inducing for time-poor small business owners than accounting. It’s one of those mundane tasks that always seems to take up too much time and drains your much-needed energy and resources.
But in the age of easy-to-use cloud-based tax and accounting software, money management tools and budgeting apps, there’s really no excuse for poor income and expenses tracking.
Businesses that fail to effectively leverage the latest in digital offerings to better manage cash flow eventually fall behind their more tech-savvy and agile competitors. So pencil in some time every day, or every week, for your accounting management. By making regular financial reviews and analysis a priority, you can gain valuable insight into your company performance and stay organised well ahead of tax time.
4. Losing Sight of Your Business Plan
Many small business or sole traders make the mistake of assuming they are too small to make a business plan. But the truth is a well-defined and carefully crafted business model from the outset can be an invaluable tool for any business, however big or small.
A business that wants to be sustainable and grow needs a plan that understands its opportunities, risks, cash flow, marketing objectives, sales targets and growth projections. A solid plan will also help you dissect every component of your business and identify any potential problems or flaws. On top of this, it will help you break down any seemingly difficult or overwhelming tasks into more manageable targets and objectives.
5. Overcomplicating the Simple Things
Small business owners who want to be noticed and heard over their competitors can sometimes overcomplicate the simple things and actually cause their business more harm than good. Offering too much choice to customers can create decision fatigue, and bombarding clients with too much marketing information, promotions, discounts and newsletters can just become annoying.
So think about having a balance that gives your customers time and space to decide while providing them with an overall memorable and engaging experience. This could mean simplifying your supply chain and fulfilment method or providing more consistent product delivery and customer service. By taking time to review and simplify your supply, service, processes and systems, you can not only save time and money, but greatly improve your overall brand perception and tighten your business focus.