The Top Money Mistakes that Small Businesses Make
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Not all small businesses are the same, of course, but there are a few money mistakes that are common to many types of small businesses. Check them out, and make sure these are not happening in your small business.
Mistake 1: Not Documenting Your Financial Foundation
This means doing your due diligence. Running a small business requires more than a great idea and some agile folks. It requires thought, planning, and documentation.
You're good with the thought and the planning, but the documentation? Most of us don't really like it.
It's important, though, and if you think that you can lead your small business to financial viability without keeping track of things - like your money - you're in for an unpleasant surprise.
Do you have a business plan? Do you have written goals for the short-term and long-term? Do you have the legal documents needed to run your business? Contracts for your employees, projected expenses, and accurate estimates of growth expenses and overhead as your business increases?
Though it's easy to think that winging it will work, especially at first, it becomes more and more difficult to keep track of what's happening financially as your business ages and grows. You need financial documentation for sales, expenses, taxes, employees, contractors, and, really, anything that involves money coming into or going out of your business.
Otherwise you really can't know what's happening with the money in your business, and not knowing is the most common and most dangerous mistake of all.
Mistake 2: Thinking that the Small Leaks Don’t Matter
In a small business, the small leaks do matter. And you know what? In a big business, they matter, too. Small leaks add up to make a big difference.
If you are seeing your business lose money in small quantities in any area, you need to find out why it is happening and what you can do to stop it.
Is it part of the process?
Then the cost needs to be calculated in the overhead, operating expenses, or other designated costs of running your business. If it's not tracked and estimated, you won't be able to make a good estimate of your profits.
Mistake 3: Losing Control of Inventory
With frequent fluctuations in volume and/or type of inventory, it's easy to lose track of what is happening. Inventory represents money for your business. Perhaps you haven't paid all the inventory off, in which case there is a lot of potential lost money if you don't pay before the interest starts accumulating.
One of the most basic things a small business must be able to do is track its inventory. Find a system that works: an app, software, a dedicated system.
Make sure that your employees are trained and able to track inventory as counts change, and that there is a periodic overview (quarterly or annually) to make sure that the inventory counts are accurate.
Mistake 4: Letting Disorganization Create Financial Chaos
If you have all the documentation but you can't find it when you need it, it's not going to help you out very much.
Is organization an issue in your small business? If so, it's time to tackle this issue so that you can get your hands on the paperwork and information you need when you need it, not three weeks or three years later, when you find it hidden at the bottom of a stack on your desk.
Organization may not be a fun activity, but having things organized and accessible will make your work so much easier. Invest the time. Get help if you need it. Set aside a weekend and tackle one area of your business at a time until you have papers filed, supplies categorized, and documents accessible in a way that works for you and your business.
Mistake 5: Skimping on Your Employees
What's the bread-and-butter of your business? Is it your product? Your flagship service? Your brand? Your customers?
It's your employees.
How many do you have: 5, 50, or 500? It doesn't matter. If you're a tiny business, a small business, or a medium business, your business is only as good as the employees in it.
And if you're skimping on your employees, you are hurting your business.
Pay a decent salary, enough to attract the good employees who will do great work for your business. Put appropriate benefits in place. And invest in employee training, whether that investment is in terms of hours or dollars, or both. The best and most talented employee cannot do a good job if you haven't provided the right training.
Get the most out of your employees by investing more into them.
What's the Bottom Line?
Isn't that the basic question that every small business owner wants to answer? What's the bottom line: what are we making, and can we keep making it, and is it enough?
The bottom line is that keeping track of money in your small business is something you can do and must do. And when you build that good foundation, handle the small leaks, get organized, and invest in your employees, you'll be building a sound financial future for your business.
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