No matter how careful you are as a business owner, chances are you might make some financial mistakes in the course of your business. Regardless of the type of business, finances play an important part in the success and failure of any business. Let’s look at four common financial mistakes that you must avoid as a small business owner:
Pay your bills on time
Sticking to due dates when it comes to paying bills is not a practice followed by most of us. We tend to put them off until later. Whether you are billing your clients or paying your own bills, adhering to timelines is essential for your financial health.
Business owners tend to give an extended ‘credit-period’ to their clients to foster more sales. While this is a good ploy, it can cripple your cash flow. If you are confident about the products or services provided by you, then you must push for a shorter tenure to clear the invoice. If you have employed the services of another organization or a freelancer or if you have loans to be repaid, then you must be more cautious and ensure that you stick to timelines. Missed or delayed payments can get you a bad reputation along with damaging your credit score.
Have a Contingency Fund
A backup or an emergency fund is the backbone of any business. Every business will face financial hurdles and that is when the contingency plan will be tested. Regardless of the size of your business, you must put away some money into the emergency fund every time you receive a payment. Another avenue is to take a loan for the essential business expenses. For a small amount personal loan works, however for a bigger amount, look at business loans or loan against property as an option.
Business and Personal Funds – Drawing the line
It is vital to separate your personal and business finances right from the word go. Discipline yourself to use your personal card and account for personal purposes and business card and account for business purposes. If you don’t do this, then you could face a lot of trouble reconciling your accounts, calculating profits and filing tax returns.
Avoid spending time on non-cash generating activities
In business, smart business owners are those who can quickly differentiate between cash-generating and non-cash-generating activities and prioritise their time accordingly. Usually, there are fixed number of activities that generate cash in any business. IDENTIFY THEM. Once you have identified them, you must try to spend your maximum time doing those activities.
Unless you are financially savvy, you will make mistakes in your journey of setting up your business. Accept them and learn from them. These tips can certainly help you avoid the most common mistakes and prepare to get a better understanding of your finances.
To make your business path less stressful and more structured, you can avail Business Loan facility by Bajaj Finserv.