Here’s a scenario that happens all too often. A small business that appears to be doing well, offers quality products or services and customers leave happy. So what’s the problem? This same small business that appears successful on the outside is struggling on the inside to overcome financial challenges.

Of all the roles a small business owner has to take on, effectively managing the company’s finances is often the most challenging. Many business owners don’t have a background in business finance and are more focused on bringing in business and serving customers than they are on financial planning.

As a business owner, you can stay ahead of the game by avoiding these common money-losing mistakes.

Poor staff planning. Small business owners often fall into the trap of hiring full-time employees even if there’s not enough work to go around. Rather than employ a full roster of full-time employees, hire staff on contract. This allows you to scale up or down as needed.

Under pricing. Figuring out what to charge for products is not easy and small businesses – especially those just starting out – often don’t build in a large enough profit margin and end up charging too little. Remember to account for all of your costs when figuring out what to charge, and reassess your pricing structure at least once a year.

Under-estimating time. Small businesses that offer services often end up under-estimating the amount of time it will take to perform the service and end up doing the job at a loss. Ensure that your costs accurately reflect your efforts and includes a little extra for project overrun.

Excluding start-up costs. When launching a new product or service, there is almost always a start-up cost involved – a cost that is often forgotten about in the pricing model. Always plan out all of your costs well in advance so that a new product doesn’t start out at a deficit.

Failing to collect accounts receivable. For owner-managed businesses, it’s difficult to repeatedly make the time to chase down unpaid invoices. It’s simply a fact that some clients won’t pay their bills on time so plan to spend time chasing them down to collect what is owed to you.

Mixing business and personal expenses. As an owner-manager, it’s tempting to transfer personal home expenses to the business. This is never a good idea because by doing so, it’s difficult to keep track of how much money the business is actually making or losing.

 

 

 

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