Business success stories are inspiring. However, no successful entrepreneurs ever say they had it the easy way. Often, the path to success is blurred by mistakes and challenges.
Data from the U.S. Bureau of Labor Statistics reveals that 20% of startups do not survive more than two years in business. With nearly 50% of entrepreneurs quitting within five years of operation, this looks like quite the journey to the mountain top.
So, how can you make it to the top of the mountain? You need to have an eye for mistakes, turn the mistakes into a valuable lesson, and then come up with practical strategies to prevent a repeat of the problems.
We created this guide to walk you through the common finance blunders every small business owner should avoid. Keep reading.
1. Failing to set SMART financial goals
Many dive into business with high hopes of reaching their projected financial milestones. Unfortunately, things don’t always pan out as expected for the majority of entrepreneurs.
It’s good to challenge yourself and your team with goals that stretch your skills. However, you don’t want to waste your energy and resources on unrealistic financial goals.
Chasing overambitious goals can breed a business culture where failure becomes accepted or expected. It could also prove to be emotionally draining for your team.
If you want your small business to stay on track, ensure your financial goals meet this criterion:
- S – Specific
- M – Measurable
- A – Accountable
- R – Realistic
- T – Timely
2. Scaling your business too quickly
It is uniquely satisfying to see your business grow on the project path, generating an impressive ROI. As a smart entrepreneur, you will want to increase your investments and tap into new growth opportunities.
However, that could be a dangerous move. Things are likely to backfire on you if growth stalls and the situation fails to improve.
Entrepreneurs who expand their businesses too fast risk ending up stretching their resources, unfulfilling customer promises, and getting stuck with new employees with limited to no work.
After a taste of success, no business owner expects to get to a point where they cannot afford to pay staff their wages.
Creating healthy, sustainable growth for your business usually takes a slow and steady approach. Instead of hastily scaling your small business, use the gained resources to improve the quality of your services, products, or processes.
3. Lacking a proper accounting system
Proper bookkeeping is critical, but many small business owners often overlook it. Through bookkeeping, you can accurately keep track of your operating budgets, expenditures, and income.
With access to accurate and up-to-date business information, you’ll be better equipped to make more informed decisions, especially when it comes to tax preparation.
Accounting records help you better understand your business cycles, identifying strengths and weaknesses early enough to keep business running smoothly. They essentially allow you to adjust your goals accordingly.
You don’t need a full-time bookkeeper to stay on top of things. Hiring a part-time bookkeeping professional makes more sense.
But before you can start tracking your costs and profits, it’s worth ensuring you have a banking support system in place.
You need essential banking services, such as checking accounts, business credit cards, and treasury management. A platform like Nearside Business Checking can support your small business operations and improve your financial management.
4. Trying to save money by doing everything by yourself
You can’t be an entrepreneur who is good at everything, that’s for sure. However, many new small business owners assume otherwise. Sadly, things tend to get complicated along the way for such entrepreneurs due to many poor business decisions.
Ideally, you should focus on making the most out of your natural talents and strengths, rather than mastering everything. You deserve a helping hand in areas of your weakness.
Therefore, consider partnering with a knowledgeable team of advisors and other professionals that can help steer your company in the right direction.
5. Adopting a price-cutting strategy
There will always be a price war in every industry. When competition intensifies, some business owners are tempted to reduce service or product prices to gain a competitive advantage.
However, this doesn’t work well for most small businesses. While most customers want affordable solutions, they won’t necessarily go for the cheapest available. Prospects might perceive your items as less valuable.
What’s more, competitors might counterattack your strategy with even more price cuts. Constant price wars could cause problems for businesses, leading to a salary reduction or employee retrenchment.
Keep in mind that there are customers willing to dig deep into their pockets to get items they rate high in quality or convenience. Think of features you can add to your product to make it even better if possible. You are likely to notice sales rise even if you increase the price.
6. Wasting money
A new business typically generates limited returns and revenues. Running a business requires spending cash now and then. As such, it’s imperative to monitor and optimize your cash flows.
Bad money handling habits can cripple your business, especially if you have limited access to capital. Entrepreneurs new to the game easily get carried away and hire too many people or invest a bigger share of assets in long-term projects with a promising ROI.
When starting out, you can work with knowledgeable and reliable generalists instead of specialists. Specialists can come in as you scale up or business operations become more complex.
Even though you cannot do without long-term investment, make sure your business has a steady cash flow for smooth operations.
7. Underestimating how much capital you need
Transforming your ideas into reality requires capital. Most small business owners assume they can stay in operation with less working capital. Capital is essentially the lifeblood of every business.
In most cases, entrepreneurs know the range of funds they need to cover day-to-day costs. However, many are less in tune with the potential financial challenges and delays in their line of business. This disconnect can lead to funding hurdles along the way.
There you have it!
