FindItMore | Most business owners choose an industry in which they have some previous knowledge or experience so that they can get a good head start. While this is a great idea, every business owner should also have some knowledge of what it takes to run a profitable business.
Unfortunately, this rarely happens. Business owners feel like they have some understanding of what they need for do, but at the end of the fiscal year, it’s clear that their financial management undermines every success.
Here are some of the most common financial mistakes small business owners make:
Wrong pricing
Small business owners usually don’t understand the value of what they are giving to their clients. There are plenty of things to consider when setting a price. For one, focus on the profit that you wish to make. This will ensure that the price you set is right. Next, look at competitors prices to determine how you should price your products. You don’t want to set a price higher than your competitors and end up with a product that no one wants to buy. Finally, think about what the customer is willing to pay for your product. All of these elements combined should give you a price that will be satisfying for you and your customers as well.
Don’t set discounts too easily but rather bundle your products or services. This places value on your products and business.
Data entry errors
Most small businesses still rely on spreadsheets and manual entry for their expenses. This is not only time consuming but could also be costly if mistakes are made – and with manual entering, this often happens.
“However, there is a solution more and more businesses accept – integrated expense management platform. This enables quick entry and data access, eliminates mistakes and discrepancies between sales and overall expenses”, – says Tanya Cupp, a Financial Consultant at Ukwritings.
This system is useful for making your financial management easier but also measuring your success with more ease than before.
Bad cash flow
Many small businesses experience this issue – they have steady and solid sales but a complete lack of cash. This can be avoided, though. Create a cash flow forecast and you’ll be able to understand it better as well as identify when you might experience a shortage.
Get your customers to agree to payment terms upfront. For larger projects or more expensive products, ask for a deposit or prepayment. Promote high turnover items with a good profit margin while removing or reducing products with low turnover and small profit margin.
You could also reduce the stock you have to reduce the storage costs but make sure that you always have enough product in stock to meet your customer needs.
As you can see, with proper planning of the cash flow, you can improve your cash availability throughout the year and always be prepared for shortages.
Lack of metrics
Small business owners often forget about setting metrics to measure their performance. This goes for both financial and non financial aspects of running a business. However, they need to understand the benefits of having these. For one, they help you understand exactly how well you did in the previous fiscal year in comparison to previous years or your competitors results as well as your company’s original goals. You can measure financial aspects like sales and profits but also your success on social media, number of leads gathered or your marketing campaign success.
Monitoring components of gross profit can really help in improving your productivity. Set clear targets and measure your performance against those targets. That way, you’ll easily notice areas where you are under performing and you’ll be able to fix it.
Slow debt collection
Every small business owner should realize that they have put a lot of hard work and money into creating their products and that they deserve to be paid for it. However, most small business owners fail to realize this and they feel bad about asking for the money that they deserve. But this shouldn’t happen.
You should put more effort into collecting debt. Set deadlines for payments upfront. Instead of giving your customers 30 days to pay, give them 15. For those who have a history of debt, call them the day before the payment is due, not just after. Remind them politely how much they owe.
A good practice would be offering a discount for paying on time or earlier and impose interest rates for each day of being late with the payment. Be transparent about this from the start. Your customers should be aware that you want your payment policies respected.
When necessary, use debt collectors. You shouldn’t be afraid to ask for money that is rightfully yours.
Over To You
As a small business owner, you are facing many issues, one of them being the financial aspect of your business. You should learn how to deal with it by using good practices and respecting yourself and your business.