The coronavirus pandemic has burdened many small businesses. One of the ways a business survives the pandemic and looks beyond it is to manage its money prudently. That means being aware of money mistakes and avoiding them, or at least fixing them fast. Here are some of the most common money mistakes and ways to keep them under control.
Starting up without a business plan.
The plan is the foundation of your business, specifying how it will be operated, marketed, and financed. A business plan also helps you recruit investors and secure loans. It lays out milestones, goals, and metrics to measure whether you are succeeding. Without a carefully considered plan, surprises can cause your business to descend into chaos. If you launched your business without a comprehensive plan, don’t panic. It’s never too late to establish a suitable business plan. If you need assistance, contact your local SBA SCORE chapter – they have the expertise you’ll need to ensure your business has a proper foundation.
The two main culprits are overestimated receipts and underestimated expenditures. When cash runs short, you face a liquidity crisis in which you can’t pay your bills on time, if at all. This will eventually lead to bankruptcy or a fire sale unless you take steps to prevent it. Start by developing several worst-case scenarios to see where you are most vulnerable. For each scenario, map out a series of steps you can take to correct the situation. And make sure you have a convenient loan source that you can trust, like IOU Financial. Loans can help you navigate through a cash crunch, but you must first work out a plan to use the money wisely and to repay it on time. Luckily, IOU Financial offers extremely flexible repayment terms that our borrowers can live with.
Intermingling business and personal funds:
This leads to disaster. Paying expenses with your personal credit card or checking account makes it difficult to track your business’ performance. You can also expect problems sorting out personal and business deductions when you file your next tax return. This problem is compounded if you are audited by the IRS or by angry investors. Finally, intermingling business and personal funds will make it exceedingly difficult to obtain a business loan. The fix is to establish a separate business account at your bank and to procure a business credit card. Use these to record all business income and expenditures. If you need to use personal funds for your business, create and document a formal transaction. If you have business partners, include them in your money management strategy.
Falling behind on your bookkeeping.
Sure, paperwork is a pain in the neck. But you won’t know real pain until you face a financial problem with incomplete, inaccurate, or non-existent records. For example, if you hurriedly stash your purchase invoices in a drawer, you may forget to pay them and/or reap any discounts offered for prompt payment. Conversely, how will you stay on top of your receivables when you can’t locate the invoices you sent out? Will you be able to substantiate your business expenses like travel & entertainment? You can use a friendly software package like QuickBooks to keep your books and records. If you can’t or won’t do the bookkeeping yourself, hire a part-time bookkeeper to whip your business into shape.
Mispricing your offerings:
Whether you sell a product or a service, setting the wrong price has a significant impact on your business. If the prices are too low, you may increase the total volume of sales while losing money on each transaction. Set your prices too high and you’ll suffer reduced sales while your competitors steal your business. The fix is to do some research and reassess your pricing strategy so that it’s in line with your current local prices.
Cash is your businesses’ lifeblood. You must nurture it if you want to remain in operation, especially during times like these. When the time comes for a loan, please contact IOU Financial first. We can fund you quickly and provide you with flexible repayment terms. Don’t wait until it’s too late – remember, government stimulus packages are unreliable at best, but we’ll still be here at your side fueling the growth of small business.