Money makes the world go round. For businesses, making money is extremely important. There are not many businesses that could survive for very long if the money dried up. Companies are made up of hundreds of components that contribute to their success, from strong sales teams, excellent marketing, competent staff and great products – but if business owners don’t take care of the money they make then it doesn’t matter how well everything else is working, it could all still go wrong.
To avoid mismanaging the funds in your business, here are some of the biggest mistakes business owners make when it comes to money, so you can avoid them:
- Spending too much, too soon
When you first launch a business it can be difficult to rein yourself in. You’ll no doubt have dreams of a premise to run your business, some staff members, a company car and a nice salary – but you have to try and resist the temptation to spend lots of money in the beginning. If you have no need for these expenses yet, don’t tie yourself to them until you know that you are financially stable. Four in ten new businesses fail within their first year. It isn’t nice to think about, but you do need to prepare yourself for the worst or you might find yourself without a business and in financial trouble. Keep your expenses to a minimum for as long as you can. Don’t spend money on anything that is not absolutely necessary.
Undervaluing your product or service
It’s a tough old business world out there. There’s lots of competition. A common mistake amongst business owners is the undervaluation of services. We know it can sometimes feel like you might lose a lead if you quote a reasonable price and the temptation can be there to drop the cost in favour of securing the work, but quoting unreasonably is counterproductive. You’ll spend the same amount of time working on their project as you would have on a project someone paid you correctly for. If you fill up your time with work that you aren’t being paid enough to do, then you’re never going to be able to grow. It’s better to have two clients who pay you right and lots of free time to look for more than ten clients who pay you poorly and no time at all.
Not spending enough
While it sounds contradictory after when we’ve just been telling you not to spend too much, but not spending enough is also a common business mistake. It’s about spending your money on the right things. If you’re selling a product and it needs updating to stay ahead of the game, you need to invest that money to stay current. If you’re in desperate need of sales and marketing help to bring in more clients, it’s important that you invest in the help. Just be careful with your budgets and make sure you aren’t spending everything.
As the saying goes ‘that time is money’. Your time and the time of any staff that you have is extremely valuable. You should be utilising every single second of every single day. Every moment you have should be dedicated to achieving your ultimate goal, with the most important tasks prioritised. If you’re wasting time, you’re wasting money.
Borrowing too much
Lots of people want to start a business but feel like they can’t because they have no cash injection. It can be tempting to take a loan from the bank or from a friend or a family member but do this cautiously. You’ll have to pay that money back, which could leave you struggling to make large monthly repayments from the money that you earn. If the business doesn’t work out, you might find yourself paying back cash for a really long time. Try bootstrapping as much as you can in the beginning. This will mean that when you do start making money, it will all belong to you.
6. Not prioritising tax
One of the main reasons many businesses fail is due to poor management of accounts and failing to consider the correct tax owed to HMRC. For companies that don’t take time to keep track of their finances and pay the relevant tax at the right time, a hefty tax bill could appear as a shock and be the end of the business.
Even if your business is making a healthy profit, there’s always something that you can do to reduce costs and take your business to the next level. Check out this article: How To Save Money In Business