5 Mistakes to Avoid While Managing Your Small Business

A small business has its share of challenges and rewards. It’s been noted that, in some cases, entrepreneurs can be great at starting a business but not so great at managing it day to day. However, this is not predestined to come true, especially if you avoid the big problems that most small businesses face. In that spirit, we present five very common mistakes that trip up small business owners. If one or more of these apply to your situation, take steps to rectify, or better yet, avoid, the problem. You never receive a guarantee of success in business (or anywhere else, for that matter), but addressing these hot spots will help put the odds more in your favor.

Inadequate Planning: You can sidestep a lot of anguish by assembling a business plan and a budget forecast for the initial year of operation, and updating it periodically. A business plan tells investors, vendors and potential customers that you have given serious thought to your business, including, marketing, finances, selling, operational procedures and organizational policies. A budget demonstrates your comfort at forecasting numbers and making reasonable assumptions. Make sure you address the important issues regarding taxes, buying inventory, compensation, and interest payments, to name a few.

Improper Accounting Procedures: You can’t keep books at whim — you must attend to them daily, even if it seems inconvenient. Not keeping your books accurate and up to date invites unpleasant surprises or worse. Without correct information, these surprises can affect your business profoundly. Improper accounting procedures can result in unpaid debts, uncollected income, shortages of cash and even bankruptcy. If accounting is not your cup of tea, either by temperament or by ability, then for heaven’s sake engage a bookkeeper or accounting service to maintain your books properly. The service will pay for itself many times over, and, of course, it’s tax-deductible!

Poor Internal Controls: Having a bookkeeper is necessary, but not sufficient, for keeping your business running smoothly. You also need to install internal controls that prevent employees from embezzling or hiding mistakes. You or one of your trusted partners must frequently review important primary financial documents, such as purchase orders, invoices, cancelled checks, bank statements and receipts, and ensure the information matches that in your books. Be especially careful about who can sign checks and amounts that require a second signature. Even if you use an outside vendor to keep and/or audit your books, remain personally involved in overseeing internal controls and don’t be afraid to tweak them as necessary.

Failure to Delegate: Let’s face it: Some entrepreneurs are, frankly, megalomaniacs. They feel it’s impossible to delegate even the tiniest task, forever micro-managing each employee and generally creating a nightmare for the staff. Sooner or later, your business will suffer, your employees will revolt and things will start falling between the cracks because you’re spread so thin. Get a grip! Abandon this self-defeating behavior by respectfully communicating with and delegating to your staff. Meet frequently with your employees, receive periodic updates (but, please, not nine times a day), and create procedures that allow you to evaluate whether the business is operating well. One last thought — don’t go too far in the other direction and lose control of your business!

Not Planning for Contingencies: Even if you do everything right, businesses (and life) are unpredictable and important matters are often out of your control. For example, you might sell a product that has just been recalled by the FDA, or supply a service which has suddenly lost its appeal. You need to plan for all sorts of contingencies and figure out what resources you’ll need in order to respond optimally. Sometimes, this means you’ll need to secure credit quickly, so make sure you have in your virtual Rolodex the name of a lender that can respond to a loan request in a couple of days, like, for instance, IOU Financial.

Quick Ways To Boost Your Business Credit

Most businesses require credit and loans to operate as efficiently as possible. This is especially true for small businesses, which frequently have insufficient working capital. To boost working capital, a business can:

  • Take out a loan, cash advance or revolving credit line from a lending institution.
  • Issue notes and bonds, although this can be a somewhat slow, expensive and tedious process.
  • Apply for mortgages on land and property, but once again, this can be time-consuming.
  • Pledge assets, such as inventory or accounts receivable. This can be fast, but the downside is that you frequently receive only 80 cents on the dollar, or less.

Working capital helps a business finance its acquisition of equipment, property and inventory. It fuels operations and growth. No matter how well prepared they are, many good businesses encounter cash flow problems from time to time, requiring a quick infusion of cash.

Cash When You Need It

Clearly, the most straightforward way to shore up your working capital is through a short-term loan, usually ranging from six months to one year. Since working capital is a short-term asset, you do not want to be saddled with long-term debt to finance it. Unfortunately, many banks make it difficult and expensive to arrange business loans:

  • Often, banks look narrowly at a large set of criteria, such as credit scores, histories, cash flow, P&L, tax return data, and business plans. This approach doesn’t give sufficient weight to the expertise and experience of owners.
  • Banks tend to be slow moving and bureaucratic, requiring prospective borrowers to fill out voluminous paperwork and the wait patiently for the verdict of the loan committee.
  • Banks and other lending institutions may structure loans with hidden fees or capricious rate hikes.
  • A bank’s loan covenants may require permissions from the bank, or alter decisions borrower can make if they trigger certain loan agreement covenants.
  • Last but not least, most working-capital situations require less than $100,000 – most banks don’t have loan programs to address capital needs less than $150,000.

Not surprisingly, the deficiencies of bank borrowing have spurred the development of government-regulated non-bank lending institutions, such as IOU Financial, that provide a better way for small businesses to borrow. Business owners benefit from commercial lenders that have found ways to overcome the shortcomings of bank borrowing:

  • Holistic evaluation of a business that transcends narrow criteria like credit scores and cash flow projections, instead concentrating on the big picture.
  • Quick online applications and decisions, making money available in as little as two days.
  • Reasonable fees with no hidden fees or arbitrary rate hikes.
  • The ability to repay as often as daily, directly from your business account.

Conserve Your Cash

In addition to borrowing money, you should also take sensible steps to conserve cash when working capital is low, including:

  • Understand and control your immediate cash inflows and outflows.
  • Postpone non-essential spending and accelerate collections, making sure you deposit checks on the same day.
  • Ensure you collect interest on any idle cash.
  • Sacrifice purchase discounts in favor of taking the full time extended by your suppliers for net payment.
  • Negotiate extended terms of payment with suppliers/vendors, and, where feasible, convert accounts payable items to short- or medium-term notes.
  • Postpone purchases of inventory, supplies and other items, and cut inventory stocking and reorder levels. Consider adopting just-in-time ordering.
  • Freeze wages, bonuses, travel, education and discretionary spending. If applicable, defer or skip stock dividends and repurchase programs.
  • Reduce or skip profit-sharing contributions.
  • Cut shipment times so that you can invoice sooner.
  • If you are a service provider, accelerate delivery of chargeable services.
  • Increase production and couple with new sales incentives.
  • Work your accounts receivable to collect overdue payments, and increase sales discounts to encourage immediate payments. If necessary, adopt an electronic invoicing system to speed up collections.

The combination of timely business loans and cash conservation can help a business weather a cash crunch and keep it on course for smoother sailing ahead.

If you’d like to learn more about quick commercial loans, please contact IOU Financial, 1.844.750.8468.