Starting a business is not easy. If it was, everyone would be doing it. No matter where you are in your business, one of the best things you can do is to avoid some costly mistakes. While most business owners fail at some point, some mistakes have a direct impact on your business finances. Here are six common small business mistakes you should avoid.
Not Monitoring Your Cash Flow
Cash flow isn’t a sexy concept, but it’s important for your business. Who wants to bother with boring spreadsheets when you could be blogging or marketing? Not paying attention to your cash flow is one of the biggest business mistakes you could make.
Get on top of your small business finances with an accounting program like QuickBooks. This provides you with a snapshot of your entire business. Not monitoring your cash flow is one of the most common small business mistakes that make the most impact on your overall business. If you’re going to ignore the financial aspect of your business, then it’s time to quit or hire an accountant to help you out.
Ignoring Tax Laws
Maybe you have a tax professional or CFP to help you with your tax returns. Even so, it’s your responsibility as a business owner to keep up with state and federal tax laws. The professional that you choose should be aware of these laws and regulations. Network with other business professionals who keep up with the IRS changes and provide you a way to reach out with any questions.
Some of these tax changes can affect the way you operate your business. Not knowing about these laws can affect your business since you could end up with a higher than the normal tax bill. If you don’t take the time to know these laws, you’ll be hit with fees, fines, and penalties. Some of those tax problems could become public, which could hurt the reputation of your business in the long run. You can’t become a CFP overnight, but brushing up on some of these laws never hurts.
Borrowing More Than You Can Afford
It can be tempting for business owners to take out more money than they can put back into their business. But borrowing more than you can afford means putting your business at financial risk over time. Suppose, you want to start-up a commercial snow removal service firm with a team of two or three working it in. Then obviously you won’t require a lump sum to establish the business on a primary stage. Being unnecessarily extravagant is only going to cost you higher that you later may regret paying back. You could be hit with high interest rates and payments. Your profits may get wiped out because you had to make ends meet. This could ruin your company and personal credit in the long run.
Borrow responsibly, especially if a lender offers you more money than you anticipated. It’s better to borrow conservatively than to take out a huge loan. The more borrow, the higher the interest rates. If you don’t have a reason for the huge funds, you’ll end up overpaying for the money you don’t need.
Instead, build up your business credit by paying off any existing loans. This can help you get a lower rate for any additional loans you borrow.
Lying on Your Business Loan Application
Of course, you want this additional financing for your business. But you need to be completely honest on your application. The lender will fact-check your application to ensure that everything is correct. They’ll question you about any lies that you leave.
If you start this relationship on lies, they’re likely not to work with you in the near future. This is one of the keys of effective communication strategies. Having an honest conversation with lenders will allow you to be honest and upfront with your customers, which leads to customer success.
Lenders don’t want to put themselves at risk by working with business owners that don’t fit their financial requirements or aren’t honest about their financial situation. This goes back to the previous tip about not borrowing more than you need.
Pricing Products & Services too Low
This mistake affects businesses that offer high-quality products and services. Maybe you feel tempted to offer your customers a deal. Instead of undercutting your prices, find a way for your business to charge more and to generate sales. But don’t price them so high that you’ll never get your first customer. Realizing how valuable your products and services will help your customers feel the same way, which contributes to customer success.
Getting Behind on Payments
Missing your loan payments can quickly cause your business to spiral. If you miss one payment, you’ll be hit with fees and penalties that’ll make it hard to make your next payment. If you miss the next payment, then you’ll be hit with a low credit score and other financial problems. If you’re having trouble making your loan payments, contact your lender ahead of time to keep them aware of the situation.
Most lenders are willing to work out a deal with their customers. You may be set up on a repayment loan that fits your budget and income. It’s best to get these problems sorted out as soon as possible so you can avoid those costly fees. One of the effective communication strategies is to maintain that open and honest relationship with your lender.
Your business will be filled with ups and downs. Being aware of the most common small business mistakes and avoiding them will help your business improve.
Author Bio: Douglas Pitassi is a freelancer writer and small business blogger.
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