As a small business owner, you know your funds are tighter than larger, more established organizations. That is a given, And with cash flow issues being the main reason why startups fail (most new businesses fold within 3 years, and the success rates reduce each year after this), understanding the mistakes to avoid and how best to handle your finances can enable you to sidestep the common problems and build success and good financial habits into what you do.
This post will explore some of the more overlooked ways businesses can hemorrhage cash so you can become savvier with finances and ensure your company doesn’t meet the same fate that 32% of businesses do (according to a survey by Lending Tree noted that 32% of businesses failed due to poor cash flow).
Get Expert Help and Advice
It doesn’t matter how good you are with numbers; your sole priority is making your business a success. For that, you need to be as hands-on as you can be. However, outsourcing your financial needs by hiring an in-house team to monitor spending can free you up to do what you need to be doing. This can be a huge relief, as an accountant or bookkeeper, for example, will have expert knowledge and training to ensure that you aren’t going into the red and you can remain on top of your finances easily and not be led down the wrong path. This expert help can alleviate the overwhelming burden of financial management.
Overlooking Payment Terms or Not Paying In Time
This could be not paying your loans or invoices on time and accruing costs, fines or interest or simply leaving your credit card payments too long and interest racks up. Or not taking advantage of early settlement discounts.
If you don’t pay attention to repayment terms on invoices or credit agreements, you may be wasting money that could be better used elsewhere.
When it comes to ordering supplies, it can be more prudent to use a purchase order over ordering via a website if your supplier accepts purchase orders.
A purchase order is a document issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services. It’s a formal way of requesting goods or services from a supplier, and it allows for accountability and tracking so you can see what is happening regarding payments and orders, as well as the costs. This can help you ensure that you know exactly what needs to be paid for and when and what is being charged.
Wasted Marketing
If you’re not putting time and effort into your marketing, you may as well be throwing your money away. Marketing needs to be carried out carefully, especially for small businesses, to utilize every singlel cent and ensure you get a good ROI (Return on Investment). A good ROI means that for every dollar you spend on marketing, you get more than a dollar back in revenue. Strategies like not researching the market or your audience, not tailoring your approach to your customer base, not understanding the best avenues to explore, or sending out a general message can be akin to throwing your money down the drain and are wasteful in terms of time, effort, and budget. You need to take the time to put a comprehensive marketing plan in place based on data and research so you can craft a more specific campaign that delivers exactly what you need.
Hiring Over Outsourcing
There are times for when hiring in-house makes more sense and other times for when outsourcing is better for your needs. Finding that sweet spot can be where you save money while boosting standards and services.
A general rule of thumb is to look at all the expenses involved with hiring an in-house team out of work, from recruitment to building a department, investing in tools, tech, equipment, training, salaries, incentives, insurance, etc., and comparing them not what it would cost to outsource. Then, consider the time it will take to build in-house. For a lot of aspects of business operations, outsourcing is not only more cost-effective but yields better results, too.
Not Knowing Your Tax Breaks
No one wants to pay more tax than they need to, and not knowing or understanding your tax breaks or tax obligations as a whole can increase your expenses and land you in hot water with the IRS, and no one wants that. By getting expert advice to help you understand your tax obligations and what incentives you can apply for and include on your tax return, you can take control of your finances and reduce anxiety. This understanding of tax breaks can empower you to make informed financial decisions and save money come tax season.
Insurance
It won’t happen to me is a common misconception for literally every person on the face of the earth. But as a business owner, you’re opening yourself up to more risks than the average person. Insurance premiums can be costly, there’s no denying that, and there is a wealth of policies you can choose from when running a business. However, having even basic coverage can provide a sense of security. If the worst does happen, you will be liable for any out-of-pocket expenses that result. This sense of security can provide peace of mind in the face of potential risks.
However, failing to have even basic coverage can lead to disaster. If the worst does happen, you will be liable for any out-of-pocket expenses that result. For example, if a customer gets injured using your product, or an employee is seriously hurt using equipment due to safety neglect on site, you could be facing significant financial liabilities without insurance.
Your insurance coverage can help you with payouts, providing you meet their terms, but in the absence of insurance, you’ll foot the entire cost of payment you need to make.
Unnecessary Costs
If the pandemic taught people anything, it is that you can cut costs in many places without actually losing quality or severing relationships.
Costs such as traveling to meetings out of town requiring long drives, flights, or hotel stays can sometimes not all be conducted via Zoom or other vital services to reduce travel spending. You can cut utility bills by moving suppliers or using more eco-friendly alternatives to lower spending, i.e., automatic lighting options, greener energy sources, etc. You can remove the need for printing by going digital, streamlining working hours, including more flexibility for remote working options, downgrading office supplies and equipment, and so on.
Memberships and Subscriptions
This specifically applies to memberships with organizations that are exactly like them because they think this is where they need to be. But oftentimes, this closes off your networking, and you’re only exposing your business to others who are the same. While there are organizations that can facilitate growing your business and are a good idea to invest in, others are simply expensive payments that don’t give you much in the way of ROI except to be involved in the community. So before you pay out on membership or a subscription to something in your industry, look at precisely what you get from it so you can weigh up the options and ask if it is actually worth what you are paying or not. Most times, the answer is your money will be best spent elsewhere.
There are multiple ways your business can lose money. But its often the recurring overlooked payments that do the most damage to business finances in the long run.