It does not matter whether you run a construction firm, an arts and crafts business, or a consultancy company, you need to make sure you get the financial side of your business right. After all, cash is the life-line of any company. If your money starts to run dry, you will find yourself in a position you don’t want to be in. You may struggle to pay your suppliers, which can lead to interest fees and overdraft charges. Not only this but you will not be able to take advantage of any opportunities that come your way in terms of potential client contracts. Your business will be put on hold until your cash problems are rectified, and a business on hold is one that inevitably starts to go backwards. With that being said, read on to discover more about the financial sins that business owners often make so that you can avoid making them.
Budget mistakes – There is only one place to start, and this is with errors relating to your budget. There are many different budget mistakes that businesses can make. Not having a budget is the most obvious one. If you do not have a budget, you will not be tracking your finances effectively, which almost always results in overspending. Not only is not having a budget a problem but not having an effective budget is an issue too. You need to make sure you include all incomings and outgoings, no matter how insignificant they may seem. Small inconsistencies add up over time, and you may end up thinking you have more money available than you really do. You can use software to minimise errors in this regard. However, please make sure you consistently go back to your budget to ensure that it is accurate.
Only having one main source of income – Putting all of your eggs in one basket is incredibly risky, no matter how lucrative this basket may be! Imagine if you were to lose this client or they were to go into administration. You would then be facing business ruin yourself, but if you were to diversify and have a number of different clients, you would have work to fall back on. You need to diversify if you are to achieve stability and continued success.
Tax errors –
Just like budget mistakes, there are a number of different errors that business owners can make when it comes to their taxes. Not filing in their tax returns carefully is a prime example of this. You could find yourself in serious legal trouble if you make a mistake like this, even if it was a genuine error. It may be assumed that you purposely filled in the form incorrectly. There are then people that don’t realise they need to fill in certain extra forms, which is often the case with the likes of rebate fulfillment. If you make errors like this, not only are they costly on the surface, but you then need to invest in a lawyer, which is a further expense. There are then companies that end up paying more tax than they should because they do not realise that they are eligible for certain tax breaks, for example, R&D tax credits.
Not having an emergency fund – All companies, no matter how secure the industry is that they operate in, need to keep some money aside for any potential problems or unexpected expenses that may occur. The worldwide recession shows that you never really know what is going to be around the corner. Everything could seem fine one moment, and then a disaster occurs the next. This is something that victims of data breaches only know too well. Issues like this can cost a fortune to rectify.
Mixing personal and business finances – This is another error that is common with a lot of business owners. After all, it is easy to simply buy something personal with the business credit card or to use your own debit card for office supplies. However, once you start mixing these finances, it gets complicated. If you do get audited, it can be difficult for the tax inspectors to work out what is personal and what is corporate. They may then assume that you have done this on purpose to complicate matters and avoid paying taxes, which, again, means more legal headache! Instead, you need a business bank account and you need to make sure that you keep everything separate.
Pricing too low – Last but not least, this is a mistake that a lot of people make when just starting out in the business world. This is because they want to undercut the competition. They want to entice people to choose their products or services over the other options that are available. Nevertheless, once you do this, you are saying that this is what your services or products are worth. It is incredibly difficult to then increase your prices. You need to charge a fair price – what you believe your products and services are actually worth.
Hopefully, you now have a better understanding regarding some of the most common financial sins that busienss owners make today. If you are guilty of committing any of the errors that have been discussed above, there is no need to start panicking. However, you do need to make some changes so that you can put these wrongs right as soon as possible.