Starting or maintaining a business is challenging in an economy that is still struggling. Managing finances in any types of business requires planning and discipline. The following are ten common financial mistakes that are often made.
1. Confusing Saving and Investing
The main difference is money that is saved is money that a business can't afford to lose. Invested money is always subject to a loss. Businessmen too often invest to save and thus have no idea what their long term savings may be.
2. Deferring Taxes
This sounds great, especially when a business is just starting. But many businessmen get behind the eight ball on this. When the business grows it will mean paying taxes on a larger amount. It's usually better to pay taxes up front.
3. Inadequate Insurance
Depending on the type of business and the location, certain types of insurance are legally required. Not having the insurance can mean paying fines. Businesses also need adequate insurance for liabilities such as lawsuits.
4. Lack of Forecasting
Every business must have a detailed plan written out for every aspect of the business. Failure to do so means a businessman is simply guessing about how much he'll sell and what the expenses will be.
5. Poor Accounting
Keeping track of the finances is more than knowing there's currently money in the bank. Proper accounting will show exactly where money is being spent and how it's coming in. This will enable a business to make proactive financial decisions.
6. Planning on Profits the First Year
Most businesses don't make a profit the first year. Having either enough capital or another source of income is essential. The first year of almost any business is bumpy and unforeseen costs often arise.
7. Hiring Unnecessary Employees
Hiring permanent employees means extensive record keeping and withholding a variety of taxes. This can be expensive and time consuming. For some businesses it may be better to go through a temp agency for human resource needs.
8. Not Collecting Bills
Not all clients pay for services or goods in a timely manner. Knowing how to work with clients, such as re-billing or making personal contact, to collect payments is not always an easy task.
9. Not Enough Capital
Having enough money to run any business is always a challenge. People tend to be overly optimistic when raising capital. Few business ventures run smoothly without any unexpected costs. Whatever amount is thought necessary to run the business, double it.
10. Lack of Personal Retirement Funds
Those in business sometimes neglect to put aside money for later years. It's better to plan to put away smaller amounts of money monthly or quarterly than waiting until the end of the year.
By consciously working to avoid these mistakes a businessman will save himself a lot of time and resources. Almost all of these mistakes can be avoided by writing and sticking to a detailed business plan.