One of the top reasons for SMEs failing in the first five years is because of finance. This can be from having no cash flow or not understanding their financial situation. In this article, we will look at the top six money mistakes SME owners make and how you can avoid them. Let’s begin.
1. Business and personal money are mixed
Often business owners treat the business’ finance as a personal ATM, but it is not. The money your business makes needs to be spent on its expenses and the growth plans you have for it. If you do make a profit, you can take a portion but put the rest away for a rainy day or to fund the next step for your business. It is important to have two separate accounts for your business and to pay yourself a salary from the business after all you are your business’ first employee.
2. Getting distracted
We have often heard the adage “time is money”. This is very true in business. If your attention is scattered on many different tasks, you will feel depleted and struggle to see any progress. Rather, you should focus and spend time on those activities in your business which bring in money. Concentrating on three or four tasks will cause your business to be a success, and spending the majority of your time on these things will take your business forward.
3. Save for a rainy day
One thing you can be sure of in business is that you will experience unexpected expenses. It is important to put a portion of your sales away for these expenses. By having this nest egg safely guarded you can ensure the impact of the unexpected expense won’t be catastrophic for your business.
4. Not considering annual once-off expenses
You have monthly expenses which you have budgeted for but what about the once-off expenses you have to pay yearly? This could be subscriptions, taxes, or Christmas bonuses just to name a few. It is important to budget for these expenses.
5. Ignoring your finances
When the money is flowing, it is easy to become lax with how your finances are doing. You may also not be monitoring your finances on a regular basis. You must put in protocols where you assess your finances on a weekly and monthly basis. If you do a lot of transactions, you may even want to do this daily. By knowing where you stand financially, you will be able to make accurate and quick decisions when new opportunities come your way.
6. Being ignorant about finances
Having financial knowledge and understanding how to read financial reports is critical for a small business owner. There are many resources online that offer well-priced courses or reading material to help you to learn more about finances and how they reflect the health of your business.
By working on these top six mistakes, you will create a business which will thrive and grow.
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