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Top five moneymaking mistakes in small business

money making mistakes

Most start-ups and small businesses fail due to bad money management skills. Entrepreneurs may have the idea and people skills to get the customer in the door but they often lack the ability to deal with the financial side of business. Here are five common moneymaking mistakes small business make:

1. No cash cushion

When you start a small business, it is important to be able to create a cash cushion as soon as possible. A cash cushion is enough money for your company to run should you have an unsuccessful month or two. By creating this buffer, you will be able to keep your company afloat when there is a sudden economic downturn.

2. Missing tax benefits

Entrepreneurs often miss out on tax benefits. This is why it is beneficial to invest in an accountant during tax season so that they can ensure that you get the most out when you submit your tax returns.

3. Overspending at the start

So you have a great idea and you have managed to secure the funds to see your dream become a reality. Often entrepreneurs put money into items which will not help when it comes to creating income. They are the nice-to-haves but not the necessities needed to run a business. It is therefore very important to review each purchase you make for the business and ensure that it will help you in your endeavour to run a successful venture, especially in the beginning.

4. Making forecasting errors

When entrepreneurs start a business, they are highly optimistic about how successful their venture will be. Although this is not a bad thing overall, it can cause trouble if you are too positive in your forecasted sales. To prevent this from happening it is important to find a mentor in your business sector. They will be able to advise you about their personal experience at various times and also be able to draw on what they have done in the past. Armed with this information you will be able to develop a forecasting plan which is both objective and attainable.

5. Being passive about outstanding payments

It is very important that when you start your business you have a clear payment structure and policy about what will happen if your customers pay late. This will help your business to remain open after many others have shut. It is important to follow up on late payments and advise clients that they will be charged extra should they pay late. If you have not received payment 30 days after the cut-off date for late payments it is important to close the accounts of the customers until you have received payment for the goods you have already sold them. It is also beneficial to offer a small discount to debtors who pay their account early as this will encourage them to settle their account with you more readily.

If you can prevent your small business from making these mistakes you will be well on your way to a successful enterprise. Go out and get those deals, and remember to always make sure your customers make payments.

Proudly brought to you by the National Small Business Chamber (NSBC).