Building and growing a business is one of the most challenging and satisfying things an entrepreneur can undertake. But the sad reality is that many collapse by owners failing to take simple steps to maximise profitability and cash. We take a look at the most common mistakes that entrepreneurs make and consider ways to avoid them.
When it comes to starting a business, it’s all about setting, achieving and monitoring progress against your budget, as well as ensuring a continual focus on your bottom line.
Too often though, new businesses make fundamental financial mistakes that lead to hard-earned money evaporating before the business fully establishes itself. These are the more common ones to avoid…
1. Overpaying taxes. According to a recent study some 21% of business owners claim less than half of the business expenses that are actually due to them. The main reason cited is the hassle involved in claiming what are often small amounts. But they add up! By not claiming expenses you are effectively overstating the profits in your business and, as a consequence, will be paying more tax than needed. Putting a system in place to collate expenses and to ensure they are correctly entered into your accounting system will ensure you get the maximum tax relief possible.
2. Focussing on the top line. It’s easy to be lured by the vanity of top level sales at the expense of profits. Understanding which services / products contribute to your profitability is critical to avoiding the ‘working for nothing’ syndrome.
3. Spending too much in the start-up phase. Much like a new parent its easy to fall into the trap of buying the biggest and best for your business. But do you really need that shiny new laptop and gismo? Scrutinising every single expenditure and assessing the cost vs benefit derived will keep your cash flow positive and help you improve your business performance in a measurable way.
4. Diversifying prematurely. Following early initial success many business owners are tempted into diversifying their offering. Not only can this add complexity – and cost, it can dilute the original product or service. Before embarking on diversification ask yourself how this fits with your overall strategy and ensure you have the resources to adequately support the different needs of each.
5. Being busy – rather than being productive. It feels good being busy! Doesn’t it? Don’t confuse ‘being busy’, however, with ‘being productive’. Your business relies upon actions being taken, tasks being completed and progress being made towards goals. Being distracted with emails, spreadsheets and other time consuming activities don’t help you achieve these. Keep your business objectives continually in mind, delegate where possible and develop (and document) core business processes so employees can play their part in providing a consistent product, service and customer experience.
6. Insufficient cash reserves. The reality of business is that cash ebbs and flows. Paying attention to your expenses and debtors is critical to maintaining a healthy cash flow. As a rule of thumb you should maintain the equivalent of two months operating costs to weather any tough points and to provide time to turn things around.
To find out more about this article please contact us.