Credit and Finance, Management
Three money mistakes you could be making in your business – and how to avoid them
Starting and running a small business can be a steep learning curve. There’s no doubt you’re an expert in your field, but you also need be a marketing enthusiast, a sales wizard and a master of financial management. In short, you must wear a lot of different hats and it can be very difficult not to let one of them slip!
When it comes to managing your money, it can be easy to slipup from time to time – however some mistakes could have a long-lasting impact on your business. Luckily, it’s easy enough to avoid these mistakes and making a few tweaks will help you to create the financial stability you need so you can give your attention to your other hats…
1) Not setting a budget
Setting a budget is something we all know we should do – like writing a business plan. However, it can often be one of those tasks which slips through the cracks when the everyday job of running a business takes over.
The thing is, a budget is going to help you to plan for everything else in your business. It doesn’t need to be complex, a simple budget can start off as a list of your fixed monthly expenses and your sources of monthly income. You’ll also want to include any variable and one-off expenses which you expect to occur.
Your budget will help you keep track of how much you’re spending and how much you can afford to spend, as well as identifying any potential financial problems, such as expenses exceeding income, and, in turn, you can take action to fix these issues by cutting unnecessary spending or seeking additional credit.
2) Making late payments
The odd late payment here and there can seem pretty harmless. As long as payments are made eventually and before any serious action is taken then that’s ok, right?
Well…not really. Late payments should act as a warning sign. They’re an indication of potential financial problems, which can either be due to poor organisation or something more serious, such as poor cash flow.
Late payments can also negatively impact your business relationships and reputation. After all – no one wants to work with customers who don’t pay them on time.
Lastly, your credit score can be negatively impacted by late payments and this in turn could affect your ability to get credit should you need it – and the rates that you will qualify for.
So, while the odd late payment may seem unimportant, the long-term effects may be much more serious than you realise.
3) Taking on financial risk
Of course, sometimes our ability to pay on time is taken out of our hands by other factors, such as our own customers and clients not paying us on time (or at all).
This kind of situation is frustrating at best and can be a serious threat to your business at worst. Make sure you do your due diligence before working with any new client by conducting credit checks to ensure that they are in a position to uphold their contract with you.
Equally, it is good practice to regularly check existing clients using services such as Experian Business Express, so that you can spot any early warning signs of changes to their financial situation.