Thursday, August 15, 2013

4 Common Money Mistakes That New Businesses Make

So you've started a new business venture and you're no doubt feeling on top of the world. After all, nothing is more exciting that quitting your nine to five and becoming your own boss. However, it means that you now have responsibility for handling your own money matters, and although there's plenty of advice available from professionals, the ultimate decisions are up to you. Here are a few common mistakes that new business owners make in the early years, and how you can avoid them.

1. Being too optimistic

You may be keen to turn a profit in just a few months, and you may have the projections to back up your plans, but projections are just an estimate. There's no guarantee that they will come to fruition, so you can't base all your financial decisions on these goals. 
When writing projections, you need to take into account:
  • How your expenses will grow as the business does 
  • That some clients may not pay on time 
  • There may be a lull in activities 
  • Other products could make yours obsolete 
  • Some staff and resource problems are beyond your control 
It's not all doom and gloom, but it's important to think about the kind of issues that might come up, and to build a safety net into your projections to soften the blow. 

2. Growing too fast

When the orders start pouring in, it's no doubt tempting to hire extra staff, upgrade your machines, or even open a second branch. However, it's important that you think through major decisions, and don't be swept up in the momentum of your success.
If you feel that it's time to grow, make sure you get solid financial and business development advice before you proceed. This can help you sort out the business finance you need, as well as helping you draw up a strategy for the short and long term success of your company. 

3. Hiring permanent staff straight away

Staff loyalty is important, but hiring people on permanent contracts is expensive, and it can be restrictive for new firms. It's also very hard to get rid of people if they aren't performing well, and you may discover you don't need them a few months down the line.
Whether it's industry specialists, or people to answer the phones, consider options such as using a temp agency or outsourcing work in the early days. This may seem pricier, but it can save you money as you don't need to shell out for holiday or sick pay. The best idea is to draw up a comparison of the two costs, or to get specialist HR advice. 

4. Spending too much

It may seem like an obvious one, but it's amazing how much small businesses owners can pour into their idea in the early days. Many businesses can be setup with minimal expenditure, and you often don't need top of the line tools and equipment, second hand will sometimes suffice until you have money coming in. Some business owners choose to buy a business lock and stock from someone who is moving or retiring, and this can be a great way to get everything you need for one price.
Making mistakes is all part of the process of building a business. However, it's wise to take advice from those who have come across obstacles in the past, as they will be able to tell you they overcame them. This will allow you to avoid those common mistakes, and take risks with more confidence, knowing that you've had the best advice around.

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