7 Financial Mistakes To Be Avoided By Small Business

February 28, 2017by yograj rathod0
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Below are the common financial mistakes that the small businesses tend to make and their potential solutions:

  1. Paying more to Government than they need – TAXES

Paying taxes is a legal and moral responsibility of every entrepreneur. But, most of the times small businesses end up paying more taxes than required, due to lack of knowledge of taxation.

Solution: Hire a financial planner who can guide your firm and save your taxes. Keep a track of all small receipts and put it to the administration/ finance department so that you can claim appropriate deductions from taxes. Also, ensure that benefits from hiring financial planner outweigh its costs.

  1. Adopting “Me Too” Approach

Often small businesses adopt a “Me too” approach in adopting new technologies and strategies from their competitors, without considering the consequences.

 

Solution: If you are an “Orange” then don’t try to adopt features of “Apple”, because “Apple” is an established company and its features might not suit “Orange”, which is just a small company.

  1. Incurring Unnecessary Expenditure

The initial phase of the business is crucial and incurring needless expenditure like buying a custom based desk or beverages machine may result in negative consequences on earnings.

 

Solution: Incur expenditures which would either result in improving the business or expedite the processes most economically.

  1. Not Prioritizing the Cash Flow

Due to lack of experience, small businesses often do not know where to utilize their cash inflows and they tend to spend it on unnecessary areas, leaving important areas gray.

Solution: Identify the key areas that require investments and allocate the cash flow according to important-urgent cost matrix as under:

Allocation of Cash Flows

  1. Sudden Expansion to Get Rich Quickly

Often, to get rich quickly, small businesses resort to rapid expansion causing misallocation of cash flows leading to losses due to increased inventory.

Solution: Expand in a calculative fashion and systematically at regular intervals as and when profitability increases or there is provision for the same. Planning wisely is critical.

  1. Prolonged Account Receivables

Debtors play the important part in the business. If receivables are not on time, then it may affect the working capital cycle.

Solution: Keep a proper track of account receivables make provision accordingly. Ensure that an agreement is in place in the first place with regards to the payment cycle and a regular follow up with reference to the payments from debtors is being conducted.

  1. Setting Unrealistic Financial Goals

Sometimes small businesses set unrealistic cost, revenue & profit targets and get frustrated upon non-achievement of the same.

Solution: Set tough but realistic targets in terms of costs, revenues, and profits. Always “try to under promise and then over deliver” even to oneself (in the case of the entrepreneur).

Conclusion:

Starting a small business is doable but managing its financial budgeting, organization and development requires careful due diligence, planning and execution. Sometimes small financial mistakes lead to cash reduction / cash crunch without our knowledge. Considering the small details and analyzing every penny will give detailed insights and scope for future business growth.
By avoiding these common mistakes businesses can surely perform better.


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