If you have made the leap into small business owner, congratulations. You have made a reality of what only remains in the realm of dreams for many. The road ahead is certainly challenging, and you will make mistakes. You can bone up on all sorts of tips, but ultimately, experience is the best teacher when it comes to running a successful business. But, while there are no fool-proof strategies to that guarantee smooth sailing all the way, there are certainly steps you can take to head off potential problems. Educating yourself on common money mistakes of new business owners certainly won’t hurt. Here are just a few to keep in mind as you grow your venture.
Overestimating Time to Profitability
Getting a new business off the ground takes money. It can be a bit before you get a steady flow of customers and income. Many new business owners think they will be turning a profit much more quickly than it will actually take. You may not see a true profit for one to two years. If sooner, great, but be conservative in your estimations and make sure you have a source of money to keep you afloat during this time.
Hiring Unnecessary Employees
Many businesses are not a one-person job; you need other people. But, if you are just starting out, be careful about hiring employees you may not really need at this time. Taking on employees involves complicated tax matters, record and registration requirements, worker’s comp insurance and following certain safety regulations to name a few issues. Filing taxes incorrectly or failing to comply with any of the many regulations you are required to follow can be costly and you may even be personally liable in some instances. If you do require the services of others, initially look into hiring independent contractors or people from temp agencies. Once you get into the groove, then look into taking on permanent employees.
No Contingency for Cash Flow Problems
Did you know that poor cash flow is the death knell for many businesses, rather than actual lack of customers? If money is not coming in when you need it, your business stagnates. There may be times when you are experiencing a cash flow crunch—maybe you are in a slow period or your customers are not paying you on time. No matter the reason, the end result can be disastrous for your business. Devise a plan on how you will deal with cash flow problems now, before it happens. Look into getting a line of credit from your bank, for example. You need to have a strategy in place, ready to go when problems hit.
Poor Management of Receivables
If you require upfront payment for services and goods, you are free from a common problem many businesses face. In many industries, customers expect credit terms, which means you are providing goods or services first and the bill later. You may be waiting a month or more for that payment, which kind of stinks already. Add late payments to the mix, and you may have some serious money problems on your hand. Get a process in place for dealing with late payments and get on top of them immediately. Consider asking for partial payments upfront. As for your overall credit policies, make sure you are doing solid credit checks, setting realistic credit terms and establishing very clear credit terms in which you adhere to firmly.
Kelli Cooper is a freelance writer who enjoys blogging about all things business; she recommends visiting Kanetix to learn more about business insurance for Canadian companies.
Marty Huggins
