As accountants, we want to see our clients succeed with their businesses. Liquidating hopes and dreams is not fun for anyone involved! Although there is a lot WE can do to help get you on the right track, there are some critical money mistakes that are often made in business that YOU want to try and avoid to ensure upwards growth and business success.
Listed below are our top five ‘no-no’s when it comes to money habits in small businesses.
Not Saving Money
Aye caramba! Not saving money is probably the worst mistake you can make in business. You need both operating capital and a separate savings account/ accounts for things such as: putting aside money for taxes throughout the year and having funds at the ready for when a great investment opportunity pops up. When you don’t have a dedicated savings plan in your business, you run the risk of digging too far into your operational accounts and being caught short when it comes to paying bills, staff, and even yourself! It can be one of the quickest ways to run your business into the ground.
Low Returns on Large Investments
Another common mistake and a bit of an all-round money-wasting black hole is continually spending money on things that don’t make (as much) money in return. This is especially important in small businesses that are not yet established. Bigger companies have the funds to take risks like running a new, edgy marketing campaign. It could be a huge flop and a waste of $200k, but hey – they have the capital behind them to shake it off and move forward. While we understand the importance of taking a leap of faith in business, it needs to be calculated. Start small, record your stats and build up a clear picture of what is working and what isn’t. From there you can develop a business plan to accommodate. Return on investment tracking is easy, not to mention incredibly smart, business. Yes, Facebook advertising might be all the rage, but are you getting more back than you put in? You might be surprised when you discover what your best business generators actually are. Once you find out, you can put a little more money and effort into that area and reap the rewards as your business kicks up a notch.
In a similar vein – try not to get caught in the ‘instant money’ trap. This is where you take a quick sale with no potential for repeat business in the future, rather than taking the time to build a sales pipeline that will help give you ongoing business. This will look different for every business type (services and products), but the concept is the same. Too much instant gratification could leave you with no future income.
Getting Too Creative With Your Bill Payments
‘To be paid by the 20th of the following month’ catches a lot of businesses out. It is important to establish robust payment schedules to ensure you are on top of your business debt. Knowing exactly how much you owe and have owed to you can get mighty confusing! You always want to know how much you actually have in your accounts after everything has been paid and accounted for each month. Make it a point to pay in the current month, so you don’t catch yourself out.
As an added bonus – Did you know that if another company decides to check your credit rating, your credit rating goes down! The whole thing works on a risk matrix system, so if you haven’t been paying your bills on time and someone decides to check up on you, the algorithm sees that as a little mark against your name. Yikes!
Money Tunnel Vision
An example of money tunnel vision in business might be: You have always wanted to make a business that sells homemade baby clothes. One day your dream is realised, and you open the doors to ‘Baby Made’. Things are going along quite steadily; you have a loyal customer base, and sales have been going so well, you’ve been able to turn the business into your full-time job! Talking to customers, you’ve started to notice that people are enquiring a lot about buying toddler sizes. Ha. Funny. You don’t currently stock/ make them because you are ‘Baby Made’, a store that is focused on baby clothes…. WAIT A SECOND. It is so important to diversify in business! Listen to your customers – is there a trend appearing? If they like you, they buy from you, and they are suggesting something else they want to buy from you – you pretty much can’t go wrong! If you don’t listen, guess what? They are going to go someplace else that can cater to their needs and you could lose them altogether!
Did you know that it is reported that millionaires have at least seven income streams! SEVEN! It sounds crazy, but it is very smart business. It is always good to have other options to fall back on, and/ or to help build up another area you are working on. You could achieve this by diversifying something you already offer, like the example above, or by having another income stream in an entirely different arena (stocks, bonds, private music tuition, yoga instruction – the list goes on).
Not Recording ALL Your Expenses And Transactions
Those $4 coffees, and business related parking costs you forget to record, really add up! Over an entire year, you could be missing out on hundreds, even thousands, of dollars. We want to know all your expenses so we can get the best out of your finances through tax deductions. The best way to track your expenses is with an EFTPOS/ credit card linked to your business account. If you happen to use cash, or a non-business card, remember to add it to your expense tracking and keep the receipt so we can process that transaction for you. Also, talk to us! We can help you work out all sorts of things that you might not be recording in your business, that you are eligible to be claiming tax back on.
If you have been cringing while you read through some of these, don’t worry. We are done with our scary list of small business money no-nos for now! Take some comfort in knowing that we all make one or two of these mistakes when we are finding our feet in business. Hopefully, something you have read here might help you with your small/ medium sized business money habits moving forward.
Remember, we are financial growth and good money habit experts, and we are here to assist you with advice and support if you need us!