5 Costly Mistakes Made By Small Businesses
Avoid these money mistakes that can cause big problems
After 20 years in the financial consulting space, providing services to hundreds of clients, The A Team has seen time and time again the problems that occur when small business owners take on responsibilities far beyond their expertise. Many business owners try to do their own accounting, HR, marketing, and more – often with disastrous results.
While some entrepreneurs might be able to juggle these various roles, most quickly lose sight of the big picture and miss the growing fissures can cause a business to crumble. As Socrates alluded: You don’t know what you don’t know.
The A Team has rescued clients from accounting blunders time and time again. Here are some of the most common and costly mistakes we see.
5 Costly Mistakes Made by Small Businesses
Problem 1: Insufficient Capital
Businesses that require raw materials and inventory, and companies that experience a surge in growth often suffer from insufficient capital. This problem can also plague businesses that are seasonal or that have substantial overhead.
As a small business owner, you may hesitate to ask for advice, assistance, or funding. But if you need capital, you have no choice. Hiring the right accounting professional can make the difference between prudent action and bad mistakes.
So, what type of accounting support should you seek? A controller who can assess forecasted income, maintain accurate balance sheets, and prepare cash flow projections can help you understand your company’s financial position and make sure that your business can pay for critical expenses like inventory, payroll and business loan payments.
If it’s funding you need, you will require the support of a Fractional CFO who can present your businesses in the best light to the people who have available funds.
Problem 2: Lack of a Budget
An accurate budget is a critical component on the path to meeting your business goals. Without one, you’re making business decisions in the dark.
An important part of a healthy budget is a reserve fund for unforeseen expenses. Most financial experts suggest having at least 6-months operating expenses on hand as a buffer against unexpected losses. While that’s easier said than done, as Benjamin Franklin warned, “If you fail to plan, you plan to fail.”
With the help of a financial expert, you can build a strategic budget, one that is both accurate and efficient, which will allow your business to navigate through high and low periods. Remember that even small expenses add up over time. Preparing an accurate budget, and then sticking to it, will keep your business on the road to success.
Problem 3: Overspending
According to The National Federation of Independent Business, 82% of small business failures are caused by poor cash management. Incorrect projections, unexpected inventory expense, expensive purchases, legal fees, and loan or credit costs can all cause a business to run out of operating funds.
As a small business owner, you have to be strategic with your expenditures. Accounting professionals can help you determine which expenditures will best produce ROI. They take a forensic look at your expenses and interpret how they affect your bottom line. There is a difference between revenue and profit. Just because you’re making sales, doesn’t mean you are making money.
Because they are able to save you money in the long-run, accounting professionals are not a costly expenditure, but rather a profit center!
Problem 4: Poor Record Keeping
Accurate and current records are a must for every business. Knowing your company’s purchases, sales, payments and other daily transactions is key. Performing this task on your own is time consuming, inefficient and ineffective when you are trying to run a business.
That’s why you need a dedicated bookkeeper. The bookkeeper keeps track of your transactions, reconciles them to be sure everything matches up, provides accurate reports and creates automations to streamline your business.
Problem 5: Incorrectly Pricing Product or Services
Many small business owners fail to consider the overhead costs and/or hidden production costs during the sales and/or service lifecycle. Some common omissions are cost of equipment, human resource costs, brick and mortar expenses or technology used to sell the product or service. You must also consider returns and refunds, shipping costs and potential defective product runs.
Each and every expense is part of the cost to produce your product or deliver your service, and your pricing should reflect these actual costs. A CFO can help analyze actual costs of production and can work with your company to help you price products and services appropriately.
An easy Solution!
Don’t become a victim of these costly mistakes. By hiring a skilled accounting professional, you gain not only time, but also the peace of mind of knowing that your books and records present an accurate picture of the financial health of your business. You can then focus on what you do best — running your business!