Top 5 Financial Business Mistakes and Their Consequences

Poor control over a business’ finances can lead to various consequences, with the most serious of all being the company entering administration and ceasing to exist.

Especially for new and small businesses there is usually a lot more risk involved when just starting out.

It is often during the early stages where a poor control over business finances will come to light that if they continue will lead to more serious problems.

Here are five financial mistakes to make sure you avoid.

 

Mixing With Personal Finances

For start-ups during times of struggle early on it can be incredibly tempting to bump up the company’s finances from your personal money pot. The two must be kept separate as otherwise it can soon complicate the accounts, budgeting and how you calculate precise profit and loss margins. Further down the line it can then appear like your business is encountering a slump as well as potentially impacting negatively on your own finances.

 

Low Pricing

The temptation for new businesses is to try and undercut rivals prices when entering a new market. Pricing too low for products or services can result in incredibly small profits and see your company struggle. An increase later on may see you lose clients. If you find yourself needing to increase your prices or hourly rate, make sure that you give plenty of notice to avoid any shocks to your clients who have come to understand your services as being good value.

 

Under-Capitalization

Thorough preparation is required when starting your own company and this involves deciding on the right amount of capital needed. It is good to be positive but you need to factor in plenty of reserve capital in the event of tough times if you don’t meet the expected sales targets. Otherwise this may result in a loan or other measures to cover certain costs.

 

Excessive Overheads

Does your business really need the latest Apple laptops? Is brand new furniture for the office necessary? Many start-ups go overboard on initial investment, so think carefully about what you need and what you want.  Save the wants for when a profit is being made. These overheads can become stagnant assets resulting in cash flow problems if sales are slow. This is one of the ways that Ryan Hibbert has been able to use his profits to invest back in his expanding business Riot Hospitality Group.

 

Lacking Financial Experts

Keeping poor records is a common problem in start-ups early days. There may be an additional expense incurred from hiring a bookkeeper or accountant but they will keep efficient records. They may even find more ways for your company to save rather than suffering further problems and the right accountant will often save you enough hassle and money to be well worth the cost.

 

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