6 Mistakes You’re Making with Your Small Business’s Finances
In this post, we’ll review six common mistakes that small business owners make with their finances, and provide tips on how you can avoid or resolve them.
1. Skipping Market Research
Conducting your due diligence with market research is important during every step of starting and growing a business. When it comes to finances, it’s important to make sure you’re charging a fair price for your products or services, both for you and your customers. Pricing your products correctly determines how well the product will do on the market and how much money you’ll make in the long run. By setting prices without taking the time to research first, you could be pricing yourself out of the market or cheating yourself out of potential profit.
What You Can Do: Dedicate time and resources to executing a market research plan. Survey potential customers, conduct A/B testing, and check competitor pricing before launching new products.
2. Not Shopping Around
While reviewing competitor pricing is important, it’s obviously not the only factor you should consider when pricing your products. For instance, with lower manufacturing costs you can have more leeway when determining price, and increase profits. One mistake many business owners make is not taking the time to shop around for vendors. Vendor pricing can vary dramatically, and it’s often well worth the time to shop around for suppliers.
What You Can Do: Compare multiple suppliers before deciding on a permanent vendor. If you already have a vendor relationship, you can always renegotiate deals or switch to another supplier if you’re running into issues with pricing or other factors.
3. Poor Organization Skills
Keeping track of accounts receivable isn’t the most exciting part of running a business, but it’s crucial so that you can ensure that you keep your finances in order. Without a clear system used to invoice, collect money, and keep records, it will be difficult to know how much money is coming in and how long it will be before debts can be paid.
What You Can Do: Put a plan in place early on and stick with it. Develop a system to keep track of invoices, send payment reminders, and follow up with any customers that owe your business money. By remaining consistent, you’ll be able to regulate your cash flow and reduce debt.
4. Lack of a Security Net
When your business is doing well and sales are booming, it’s easy to enjoy the success and avoid thinking about potential problems that might arise. Without cash set aside to cover emergencies and unexpected expenses, your business can easily go into debt and struggle to come back from the deficit.
What You Can Do: SCORE has provided a guide for small business owners to determine how much money should be kept in cash reserves, depending on your unique financial situation. Ensure that your business has an emergency fund, so that you’re always prepared for unexpected costs.
5. Limiting Your Funding Options
While small business loans can be extremely helpful for business owners, it’s a mistake to assume that these loans are your only option for financing your business. Rather than focusing solely on traditional bank loans, keep your options open. For instance, you could benefit from equipment financing, lines of credit, or a loan from an alternative lender, just to name a few options.
What You Can Do: Learn about all your funding options, including small business loans and other alternatives. As your company grows and your funding needs change, your options will shift as well.
6. Neglecting Your Business Credit
Personal credit history is important when pursuing business financing, especially if you’re working to fund a startup. While keeping your personal credit in check, don’t forget about building and improving your business credit as well. With a strong business credit score and history, you’ll be eligible for more funding options as your company grows.
What You Can Do: Use advice from Credit Karma to learn how to build your business credit while separating your business accounts from your personal accounts.
Sharing problems and solutions is one of the best ways for small business owners to support one another. Help others avoid problems you’ve faced by sharing your own advice in the comments!
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.