As entrepreneurs, we fiercely care about our companies – after all, they’re our babies. We like to test the waters where others would shrink back in fear. We like the muddy roads and obstacles since we know that they’re instrumental to our successes. We cross boundaries and push ourselves constantly. We love to take risks because we believe that risks equate opportunities.
However, not every risk is worth taking; and based on my experience as the founder of over 4 businesses, we make mistakes all the time. I believe, just as other successful entrepreneurs all over the world, that mistakes are inevitable.
However, there are some mistakes you make that can be easily fixed. There are some, especially money matters, that can leave your business in ruins and never to rise again. From a rapidly rising accumulating debt to dried-up cash flow and irrecoverable loss, there’s nothing that can bring a new business to its knees like money.
Want to stay on top of their business’ finances? Below is my list of money mistakes to avoid. Learn it and your business will be safe.
Failure to Identify Your Target Market
I’ve seen many new businesses go into the marketplace without an iota of idea about who their target market is. What’s the point of being in business if there isn’t an established and distinct customer base waiting to pay for it?
Ways to identify your target market include: defining your USP (Unique Selling Point), conducting a thorough market validation analysis, identifying your target market based on variables – such as sex, religion, demographics, beliefs, etc., as well as understanding that not everyone is your target market. For example, you can’t be selling luxury items and expect your customer base to be everyone.
Immediately Making Big Purchases for the Business
When you start a new business, it’s understandable that you’d want to furnish the company to an impeccable taste, design an expensive and jaw-dropping website, get the latest laptops and other tech devices or hire more employees than you can afford.
However, let me be the voice of reason here. Before making those purchases, think over it carefully. One piece of advice I give wannabe entrepreneurs or new entrepreneurs is that they arrange the expenses on a scale of preference. Buy or make payments for the most important ones and then come back to the less important ones later. So, grow your business first and make lots of money before spending on the ‘nice-to-haves.’
Making Large Personal Purchases (Like Buying a Car)
Yes, I know that you want to pamper yourself or make yourself feel good. And it isn’t bad. However, do you really need to buy or change your car or buy that land just to ‘feel among?’ One thing you should realize is that owning and running a business comes with dealing with a lot of unknown variables. If you don’t save for rainy days, your business might get seriously burnt. Therefore, make sure you’re as lean as possible in both your business and personal life.
Incurring Debts With the Expectation of Future Revenue
Ever heard of the saying “don’t count your eggs before they are hatched?” It’s a timeless financial wisdom that’s worthy of being framed in every section of your house and company. Just because the possibility of landing a prospect or client is almost real does not mean that the client would eventually pay for your products or services. Never spend with the expectation of future revenue.
Not Saving for Lean Times and Emergencies
Call it saving for a rainy day, and you aren’t wrong. There will be times when sudden financial expenses would arise and you would need cash quickly to solve it. What happens if there isn’t money?
Not Having Separate Business and Personal Accounts
Even if you’re a solopreneur or freelancer, a business is still a business, and it should be treated as one. As a business owner, your finances should be kept separate. If you don’t, you’ll pay the price later. I say this based on personal experience.
Rather than merging your business and personal finances due to laziness or for convenience, create a separate account.
One of the many benefits of doing this is that it would make it easy for you to easily audit your business, plan for tax, as well as budget for unforeseen expenses that may arise.
Additionally, having separate bank accounts allows you to assess your business’ financial health. Moreover, the Federal Inland Revenue Service (FIRS) could care less about your ignorance when your tax estimates are audited.
Not Setting a Clear Budget for Your Business
If you’re looking for one way to shoot your business, this is it. A budget serves as a financial map to help plan and monitor financial expenses. As a business owner as well as manager, it is your utmost responsibility to ensure that your business makes profit. And the only way for that to happen is if there’s a clearly laid budget that details your business’s operational, marketing, sales, and other expenses.
Having a budget ensures that you attain financial discipline and work towards your business’ growth.