Yes, as most business owners as well as entrepreneurs will tell you, business finance is indeed a tricky prospect in most cases! One needs to find the right strategies, prudence, wisdom and market knowledge to enhance financial operations in terms of the revenues, working capital, organizational growth and profits generated. However, a lot of business owners learn it the hard way- they end up making severe mistakes that cost them immensely, particularly when it is about running small businesses that have limited resources.
Here are some of the avoidable mistakes with regard to business finance that an entrepreneur should look out for in the upcoming months of 2018-
Not doing the accounts– It has been observed frequently that most business owners prefer to leave the complex task of crunching numbers to their professional accountants (CAs or otherwise). All of them work for the betterment of their businesses in almost every division, but many entrepreneurs do not wish to shoulder the burden of accounting. This is a major business mistake. Even if you are not doing your accounts on a regular basis, you should make it a point to be in the loop about how your business is doing and its financials as frequently as possible. This gives you greater control over your company’s financials. Hence, a note of caution- entrepreneurs who are not in control of their accounts should not risk their commercial success because of negligence on their part regarding the finances.
Evading taxes– Yes, paying lower taxes for a business to reduce the overall financial liability might seem like a tempting solution for an increased tax burden. Taxes should be paid in a timely manner. You should always have a tax savings account set up where you can park around 10 to 20% of the profits- this account will be dedicated to paying quarterly taxes, so as to avoid missed payments. This money should not be utilized for any other purpose. This practice should be religiously followed when it comes to GST and other taxations. Avoid piling up interest and other penalties on taxes paid late or that you have not paid.
Making costly purchases– The first thing that many entrepreneurs feel like doing after getting their hands on a significant amount of profits is to purchase a swanky office space or top-of-the-line gadget (or gadgets) and/or other equipment. It is justified to invest in future growth but available funds should be utilized wisely. It should be used to bring in new business, for customer acquisition or to improve the existing operations and workflow, but it should not be splurged on unnecessary things that can be avoided.
Taking on excessive debt– Many businesses fall into the trap of debt and continue to borrow funds, without putting in efforts to repay the same in a sustainable manner. Financially secure small businesses are reliant on their own cash and profits generated from daily operations. They do not resort to borrowing unless it is necessary and warranted. When the existing resources are not enough, businesses should make use of their contingency funds if it is feasible. When it comes to managing business finances on a day-to-day basis, the option of borrowing should come after the option of managing from the available funds. This is not applicable when you are expanding or consolidating on a bigger scale.
Dipping into your own pockets for expansion– Many businesses make the cardinal mistake of thinking that they can fund future expansion plans with their own cash reserves. This can make things go haywire at times and hence it is essential to apply for a suitable business finance for taking care of operational expenses, inventory building, new equipment/machinery purchases and the likes. Since an expansion is a planned business decision, using up the emergency funds that are meant to be used for unplanned and unforeseen financial issues is not very advisable. Doing so will leave the business and its owner financially vulnerable for the times ahead unless there is an additional emergency corpus available.
These are some of the common business mistakes that you should avoid this year and in the next! They can be easily avoided by agile, smart and well-informed business owners.