Entrepreneurs face an enormous series of business challenges. And in most cases, these difficulties are linked to financial setbacks that hold businesses back and prevent them from moving forward. Without money, our business is a “hobby,” the US tax authorities often say. Our problem is not the lack of money, but what we do with it, how we handle it and how it flows in and out of our pockets. As entrepreneurs, we make many financial mistakes, and if we don’t learn to avoid them, they can cost us a lot of money and time, which is our most valuable resource. Today, I want to share some of the mistakes that cause problems as an entrepreneur and prevent your business from growing.
When we don’t budget, we work blindly, putting out fires and waiting for the surprises of each day. When you have a budget, you anticipate what will come, and you will realize which area is the one that requires more effort or more resources to achieve the goals you set for yourself.
MIX PERSONAL AND BUSINESS FINANCES
Of the financial mistakes entrepreneurs make, I think this is the costliest. Many people start a business because they need an extra income, then the business grows, and they leave it as an extension of their salary. If you have not educated yourself in personal finance, it is hazardous to do this mix. Suddenly, you will feel that the business is not profitable without realizing that you have a “leak” into your portfolio out of control. Ideally, you assign yourself a salary to the extent that your business allows it.
GET TOO INDEBTED
As a businessperson, you must be prudent when going into debt. If the owner puts any property as collateral, the bank can lend to a small business. It’s easy to fall into the temptation of debt, especially if you don’t want to give part of your business to an investor. But you must be careful with the level of indebtedness because you have to pay those loans, even if your business fails. Make sure your loan debts are no more than 50 or 60% of your total liabilities.
INVEST A LOT OF MONEY IN INVENTORY
Not all businesses need inventory, but this is one of the most common financial mistakes because the optimistic entrepreneur, excited to start, did not make a business plan, so they have no idea how much they’ll sell, so they end up buying more inventory than needed, which brings results in debts.
NOT MAKING A BUSINESS PLAN
Having a business plan is a condition that many consider necessary for a good start, but it is not a guarantee of the success of a project, or even of the permanence of the company in the market; however, it is not a secret that we are more confident if we have a “map” of the path that we are going to follow.
DO NOT SEEK PROFESSIONAL FINANCIAL ADVICE
Many entrepreneurs do not recognize the importance of hiring an accountant who keeps clear accounting records, which will allow them to make good decisions and keep them away from tax problems, the advice of a lawyer is also important, which will keep you away from legal conflicts that can lead the company to ruin.
As you can see, there are many financial mistakes that business owners make or have made at some point. We need to be careful to know our company’s performance, know if our business is profitable and make the right decisions to grow as quickly as possible. Want to know more tips to avoid future business financial mistakes? Check out the first part of this blog!