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Starting and owning a business is filled with a variety of unknowns.
Because business owners are forced to wear so many different hats, it’s inevitable that they will make a few mistakes along the way.
While most can be faced with little to no longstanding consequences, there are a few mistakes that can have significant negative impacts on a business in the long run.
Here is a brief overview of the most common mistakes, as well as some preventative measures that entrepreneurs can take to prepare and better set their businesses up for success.
Financial Statements
The most common thing we see among small business owners is a lack of understanding of financial statements. Without knowing how to properly categorize and book financial transactions and read/understand what each financial statement is saying, business owners risk not knowing how their business is doing or how they can better set it up for success.
Business owners must take the necessary time to learn about each of their financial statements, understand where the numbers come from, and know how they work together to effectively manage the business.
Unnecessary Expenses
Many business owners end up paying thousands of dollars every year in expenses they believe are necessary and unavoidable. The scary part is that while some of these unnecessary expenses may seem small, they can not only negatively impact cash flow and profit year after year, but can also restrict businesses from growing at a pace that is necessary for success.
The best way to avoid this is to look for additional cost-savings opportunities. There may be alterative vendors and suppliers that offer lower costs, or processes within the business that can be streamlined.
Repayment Terms
More often than not, business owners fail to give their debt or vendor repayment terms the attention needed to fully understand what they are and what they mean for their business. But what’s the big deal? Repayment terms for both debt and vendors/suppliers often have specific conditions that, if not met in a timely manner, can incur fees and unnecessary expenses that add up quickly and decrease the business’ cash flow.
It is critical that business owners take time to look through their repayment terms, ask questions, and fully understand them. Check to see if there are any discounts offered for payments, and if any late fees or interest charges incur if payments are not made within a certain time frame.
Invoicing
A commonly overlooked area of owning and managing a business is invoicing. Businesses need to get paid to continue providing their products and services to others. By not invoicing in a timely manner, they run the risk of being strapped for cash when needed to move forward with an order or project and skewing the numbers in their bookkeeping, which makes historical tracking and budgeting more challenging.
Invoicing comes down to habit. Set a standard that invoices must be sent out within x number of days after products or services have been provided and commit to staying on top of invoices that are past due.
Not Planning for the Future
It is critical that small businesses not only plan for the immediate 1–5-year future, but also take time to think longer term (10, 20, or 30 years out) and formulate a succession plan. Without proper planning, businesses may not have enough money or space when they are ready to expand, lack the cash flow for hiring additional employees, and worst-case scenario, not have a backup plan for the business if a sudden tragedy occurs.
Business owners should write out their vision for the company and its entire lifespan. Then, should share this plan with partners, business advisors, lending specialists, and other professionals who may play a part in helping set them up for future success.
While some of these things may seem a little scary, the important thing to remember is that there are experts out there who can help. Don’t be afraid to ask questions and seek the advice of those who specialize in these topics.