Financial pitfalls often top the list of problems for small business startups.
Founders of ExpertBusinessAdvice.com, Scott L. Girard, Jr., Michael F. O’Keefe, and Marc A. Price, have been there and they’ve put together advice on how to avoid financial pitfalls.
Collectively, they have started 17 businesses and have begun a new book series as well: “The Crash Course for Entrepreneurs.” Their newest addition to the series is on financial pitfalls.
Eight Common Financial Pitfalls and How to Avoid Them:
1) Not enough cash reserves.
You’ll probably need money to invest in your business set-up and then it may take several fiscal quarters to realize a steady income (to say nothing of profits). Start up with adequate operating cash. Don’t fool yourself by wishfully thinking the money will somehow be there.
Some small business owners are forced to turn to credit cards for early-stage survival, especially when they haven’t planned properly. This is one of the major financial pitfalls. Credit cards carry high interest charges and annual fees. Whether through a small business loan, a capital infusion or your own funding, making sure there is sufficient operating capital can save you from getting into credit card debt.
3) Mixing personal and business finances.
It’s tempting to cross the line. Keeping these two entities completely separate not only makes it easier for accounting, budgeting and reconciling both sets of books, but it assists in determining actual profits (or losses) for the business.
4) Shorting yourself on compensation.
In the early stages of business it may seem like a solid decision to redistribute any and all of your profits back into your business. But not compensating yourself along the way could harm your personal finances and financial good standing.
5) Accounts receivable out of control.
This is always a challenge. Your payment terms should be printed on the back of every invoice, and you should have a clear process that you follow religiously in collecting payments. Make sending prompt reminders part of your business. Another risk is becoming dependent on just a few customers or having one giant customer and other little ones.
6) Need professional expertise.
It is impossible to know the ins and outs of every legal, accounting, technology and industry issue. Budget for professional advice to help learn about financial pitfalls to avoid. In the long run it will keep you ahead of the curve in every aspect of growing your business.
Trust your outsourced professionals, employees, freelancers and anyone involved in your business affairs to do their jobs and you will succeed. Avoid this trap by budgeting for it and giving people room to perform.
8) Other financial pitfalls to beware of as a first-time entrepreneur:
Opening too much credit early on, over investing too much in your business before it has proven itself, expanding too quickly, not paying attention to your financials and ledger sheets, and not staying completely organized in every aspect of your business.
The authors’ website, www.ExpertBusinessAdvice.com offers expanded support for entrepreneurs and is updated daily. Visit the site to learn more about avoiding these key financial pitfalls.