Regardless of what most people say, there is some truth to the saying ‘a mistake is an opportunity for learning and growth.’ Once you know what not to do, you’ll be one step closer to knowing the things you should avoid and the things you should do!
That said, being a business owner, be it a new or an experienced one, has its risks and rewards, most of which revolve around your finances. After all, a simple mistake can lead to terrible financial losses. So, how do you ensure that you are smart with your financial decision-making when starting a new business? Listed below are a few financial blunders every entrepreneur must avoid to experience growth and success.
- Spending Too Much or Not Enough Cash
As a new entrepreneur, money will always be your topmost concern. Unfortunately, most barely have enough funds to finance their business idea. Those whohave money follow the saying ‘ to earn money, you have to spend money.’ Such a thing is equally destructive. Instead, you have to try to fall somewhere in the middle. Identify your day-to-day expenses and learn how to spend the right amount of money than spending too much, for example, on inventory. After all, what good will tons of inventory do if you cannot market and sell it?
- Not Acquiring Financial Literacy
Financial literacy is the knowledge you have about your business’s finances. An entrepreneur’s financial skill set allows them to make sound financial decisions to boost their business’s growth. Without the proper financial acumen, entrepreneurs won’t be able to plan their budget, neither will they be able to acquire funding for their business idea. You could always acquire a formal education to improve your financial literacy. Try searching for MBA programs no GMAT required online and enrolling in one. Doing so will allow you to learn effective business management skills and improve your financial decision-making abilities while saving time and effort.
- Not Creating A Budget
One of the most important aspects of business ownership is fund allocation with the help of a budget. Projecting where you will spend your money every month will help you avoid unnecessary stress and financial problems in the future. But, on the other hand, not having a budget is just like driving to an unknown destination without the help of a road map.
However, if you create and follow a budget, you’ll know exactly how much you need to spend on a particular business area, such as inventory or equipment, and how much money you can save. Moreover, a budget will allow you to stay well-prepared if financial emergencies strike.
- Not Having An Emergency Fund
Do you have an emergency fund that covers at least four to six months of business expenses? If you don’t, you could wind up in a precarious situation if an inevitable financial emergency occurs. However, if you can set aside some cash in a high-yield savings account or your home safe, you’ll be financially ready to tackle whatever your business journey decides to throw back at you. Furthermore, while you might assume that you can always borrow money when required, that’s not always the case. Banks and private lenders might hesitate to loan you any money, specially if your business isn’t doing well financially. You can avoid such a thing by creating an emergency fund that you can dip into whenever needed.
- Keeping Your Margins Too Less
Your profit margin will ultimately make or break your business. Keeping it too low will make your life as a business owner more difficult in the future. The reason is that you’ll eventually have to bump up your product prices, and that could annoy your customers, and they’ll leave without any hesitation. Be realistic when it comes to your profit margins—identify your operating and production costs to determine the amount of flexibility you have. Then, set product prices that allow your customers to stay satisfied and provide you with a solid platform to earn more than you spend.
- Not Consulting Financial Professionals
The biggest mistake you can ever make as a new entrepreneur is not using an accountant, financial planner, and tax attorney. Whether it is a CPA or financial advisor, an accounting professional will play the quarterback’s role for your business. They’ll be there to help you navigate any financial issues related to taxation and audits. Not to mention, an attorney will keep you out of harm’s way when an employee or customer decides to get up and file an unfair lawsuit against your company. So, consider hiring financial professionals if you want to stay away from legal issues, including audits and state or federal tax compliance.
Being an entrepreneur is no easy job. Mistakes will definitely happen; it’s a part of the learning process. However, learning from the mistakes will allow you to chart your pathway to success. So, consider the mistakes mentioned above and ensure that you avoid them if you want to experience professional and personal growth. And most importantly, your resilience is what will help you learn from all your mistakes!