8 Financial Mistakes Standing In The Way Of Your Success
Business owners face many challenges as they establish and grow their companies. With the product development, marketing, and operational tasks at hand, it’s easy to lose sight of the financial responsibilities that come with running a business. However, one of the most common reason businesses fail is because of mismanagement of the company’s finances.
To help your business continue to thrive, here are eight of the most common financial mistakes you should avoid.
Falling Behind with Bookkeeping
Few people love the accounting side of their business. With all of the more interesting tasks on your list, it can be easy to avoid the often tedious tasks associated with bookkeeping. Failing to reconcile financial statements, stay on top of sales tax accounts, and follow up on invoices can lead to major cash flow problems and less options for financial resources.
Saying ‘Yes’ To Unnecessary Fixed Costs
It’s always tempting to have the latest technologies, best office space, and large base of employees, but overextending yourself can have devastating consequences. Especially in the first five years of business, you should resist the temptation of adding any unnecessary fixed costs to your monthly expenses. If you are walking the line between needing and wanting something, consider renting it to avoid the upfront investment.
Forgetting the Hidden Costs
With so many working parts in your budget and business operations, it can be easy to create a financial plan that doesn’t plan for hidden costs. These can include licenses and permits, insurance requirements, losses due to accidents or errors, employee turnover, bank and credit card fees, professional services such as attorneys and cleaning services, and repairing or replacing faulty equipment.
Failing to Employ a Strategic Financial Plan
When establishing your business, develop a clear financial plan that covers the startup stages and your growth. Failing to plan often leads to acquiring a devastating amount of debt because the decision makers continue to accept all of the lines of credit being offered to them. Ensure you are raising enough initial capital, prepare for fluctuations in sales and profits, and create quarterly budgets until you have enough history to forecast annual budgets.
Generally speaking, there are two classifications for the workers you may employ: employees and independent contractors. Not understanding the difference between the two can be a costly mistake. By classifying workers as employees when they should be classified as a contractor, you unnecessarily pay taxes and benefits on that worker. By misclassifying employees as contractors, you can face legal consequences, back taxes, and back pay. The Small Business Administration explain this difference in more detail.
Complying with IRS Requirements
One of the most important decisions you can make as a business owner is to properly prepare for your taxes. From setting aside 25% of profits to pay your quarterly IRS estimates to never comingling personal and business expenses, a financial advisor should be consulted to ensure you aren’t putting yourself at risk.
Mismanaging Your Company’s Sales
It can be tough to balance the desire to make the sale with the actual financial needs of the company. Of course, you need to drive sales, but you can drive your business into the ground by setting your prices so low that you aren’t protecting your margins. Properly manage your company’s sales by being aware of your pricing structure, diversifying your revenue streams, and establishing standard procedures for every aspect of your sales process.
Giving the Power to One Individual
Even though you pay for an accountant and accounting software, it’s very dangerous to not monitor your company’s finances. As the owner of your business, it’s your responsibility to understand your company’s financial health, so you can address potential issues and plan for the future. Additionally, oversight is an important tactic for avoiding losses due to dishonesty or human error.
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About the Author
Craig Korotko is a creative, results oriented C-Suite executive with extensive experience and achievement in creating technology solutions that deliver products and services to the financial industry. As a business coach, Craig Korotko combines his passion for leading small companies and growing them in competitive markets with his ability to lead large cross-functional teams.
In his over 30 years of corporate experience, Craig has worked with startups to Fortune 500 companies with a demonstrated track record of success. He wants to make sure you are not too busy working in your company instead of working on your company. Start the conversation with a simple, complimentary 30-minute advisory discussion. Contact Craig today.