Five Common Money Mistakes Made in Small Business

As a small business owner, you juggle numerous responsibilities, but playing the role of “financial planner” often gets sidelined in favor of more immediate concerns like procurement and customer service. Neglecting this crucial aspect of your business can lead to serious trouble. To help you avoid this fate, here are five common money mistakes made by small businesses.

Mistake 1: Letting Cash Reserves Dip Too Low
Just because your business is no longer in start-up mode doesn’t mean you can ignore cash flow commitments. It’s essential to understand that sales and cash flow are not the same. Even if sales are high, if you haven’t been paid upfront for goods or services, you may struggle to cover interim expenses. If your business is growing, ensure you have adequate cash flow to manage growth-related pressures like increased salaries and overhead costs. Combat this risk by actively tracking expenses, debt, and costs from the beginning, allowing you to accurately anticipate cash flow needs on a monthly basis.

Mistake 2: Ignoring the Budget
Your budget serves as your financial roadmap, guiding you through cash flow, upcoming expenses, and regular payments like insurance and taxes. It provides an overview of your estimated cash flow for any given month, helping you decide whether you can make significant purchases or should wait for a better month. Remember to factor in interest commitments, as these can accumulate quickly. Stay diligent with bookkeeping to ensure your accounts are accurate; without a well-maintained budget, your business may quickly run into financial trouble.

Mistake 3: Waiting to Get Credit
Ironically, the best time to seek credit is when your business is in a solid position. Healthier finances will make it easier to convince lenders that you can meet repayment terms. Explore various types of lenders, from traditional banks to cash advance providers, each with different focuses, interest rates, and terms. Do your research ahead of time to find the right financial partner to elevate your business.

Mistake 4: Mixing Business and Personal Finances
Having a small business does not mean you can merge it with your personal finances. Establish systems early that can grow with your business. If you mix business and personal finances, tracking your income and expenses becomes nearly impossible. Set up separate accounts and credit cards to better manage tax obligations and foresee upcoming budget needs. This separation is also crucial for future loans or cash advances, as lenders will require a clear picture of your business’s finances.

Mistake 5: Underpricing Your Product
One common dilemma for small business owners is how to price their products. While it might be tempting to offer lower prices to attract customers, this can be risky. Always consider the full cost of your product, including manufacturing, labor, and overheads. After establishing your pricing, revisit it at least annually to adjust for inflation, supplier demands, and market conditions. Finding the right pricing balance between competitiveness and profitability is key, so don’t undervalue your service. If necessary, support your pricing with a solid marketing strategy that highlights your value proposition to customers.

The Bottom Line

Many entrepreneurs have walked the challenging path you’re on, providing valuable lessons learned along the way. Learn from their mistakes and, if you need assistance in recalibrating, contact Merchant Capital for quick access to the working capital you need to succeed.

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