Starting up in business is a journey of discovery. Even with a carefully worked out plan and a good understanding of your product and sales and marketing strategy, it can be a hazardous trip. Where most businesses go wrong is with finance, simply because there’s a lot to keep track of and having a good business idea isn’t automatically accompanied by money management skills. These are some of the common mistakes you should be aware of.
Running low on reserves
When things are moving fast and you want to keep up the momentum, it’s tempting to invest every penny you make in expanding the business. Don’t. Be careful to build up and maintain a cash reserve so there will always be money available in an emergency. Don’t gamble on being able to get loans because terms and availability can change unpredictably.
If you do need to borrow money, do it sensibly. When you have a shiny new business credit card with a high credit limit, it can be tempting to buy everything that way, but if you start missing payments, the interest will mount up fast. Keep careful track of your borrowing, shop around for the best rates and use cash where possible.
Not being systematic
It’s much easier to keep track of your finances if you process everything in the same way. At the end of each day, make a careful record of what’s been spent, paid, saved or invested, and check these records once a week. If you have different departments, make sure they all report to the same place. Invest in finance software to help keep your records in order.
Making it personal
When you work exceptionally hard for your business it can be easy to take the things that happen to it personally. This is a bad idea. It can lead to you getting emotional and making bad decisions, such as holding onto things you ought to sell or getting angry when a deal is rejected. It can also lead to you working too long for too little and burning yourself out.
Nobody can learn everything at once so whilst you’re getting the hang of it, it’s a good idea to have an experienced person overseeing operations. Bringing in contractor accountants is a sensible way to make sure you meet all the legal requirements as far as record keeping is concerned. It also means that you have people you can call on for help if you feel out of your depth and it will reassure your bank. It’s worth remembering, in addition to this, that your bank itself has an interest in seeing you succeed and can sometimes provide helpful financial advice.
Getting to grips with your business finances is tricky and it’s important not to go too fast, but you shouldn’t let that put you off going into business. As long as you have your eyes fully open and know where to turn for support, there’s no reason why you shouldn’t be a success.