Running a business is not just about developing a great business idea and knowing your target market. It’s also about learning how to manage your finances wisely and ensuring that your venture won’t run out of money. If you’re planning to start a business, here are some of the mistakes you should avoid to keep your venture in good condition and make sure it’s a success:
Spending on unnecessary things
As early as possible, you should learn the difference between “must haves” and “nice to haves”. “Must haves”, like a decent computer, a great accounting software, and a stable internet connection, are non-negotiable products and services that your business needs to survive. “Nice to haves”, including a posh car and a fancy business address, are unnecessary things that are not really crucial to your venture’s success. Avoid spending on the latter to keep your finances intact.
Not having enough cash on hand
A lot of entrepreneurs rely on loans and credit cards, but this shouldn’t be the case for you. Technically, there’s nothing wrong with getting a business loan to get your venture started, but you should still strive to ensure that at least 50 to 75 percent of your finances are composed of cash. This way, you’ll have enough money on your hands to fix any problems and keep your venture afloat. Of course, stay away from credit cards as much as possible. Their sky-high interest rates and hefty annual fees won’t do you any favor and may even plunge you into knee-high debt.
Failing to collect receivables
Extending credit is a great way to attract more clients and increase your sales. Unfortunately, it’s also one of the easiest ways to lose money. You can prevent this from happening, though, by being vigilant in collecting receivables from your customers. When you extend credit, make sure to send your clients their invoice ASAP, complete with the exact amount they owe and the date they should pay it back. Remind them several times before the deadline and, if the date passes without any word from them, don’t hesitate to reach out to find out what the problem is and when they can make their payment.
Not paying yourself
It can be tempting to put all your earnings back into the business, but remember that you also have to pay yourself. Think of it this way: you’re essentially employing yourself to run your business, which means you need to earn a salary one way or another. You can put off paying yourself during your venture’s early days but, as it starts to earn money, don’t forget to give yourself the compensation you deserve.
Mixing personal with business finances
This is probably one of the biggest mistakes that entrepreneurs do, and it’s one of the most dangerous. Mixing personal and business finances is always a bad idea since it makes you personally accountable for whatever happens to your venture. If it ends up going bankrupt, your creditors can end up going after your personal assets, which mean you can end up losing your car and even your home.
Stay away from these mistakes to keep your business finances in good shape. If you need more tips about running a venture, don’t hesitate to call me, Paul Barradell. As a business mentor, I can give you excellent advice on how to start your own venture and bring it closer to success.