December 27th, 2022
If you are a business owner, you are probably looking for recommendations every day to improve your business. Let’s discuss some things you will want to avoid and the most common mistakes why businesses fail. If you research the top reasons why businesses fail, poor financial management always makes the top 5 on the list.
Here are some scary statistics: Forbes says 80% of entrepreneurs fail within the first 18 months, and the Small Business Administration (SBA) estimates 60% of new businesses will flop within the first five years.
In this article, we are going to discuss 5 financial practices that business owners need to avoid.
- Failing to budget
- Poor bookkeeping and cash flow management
- Insufficient advertising
- Failing to seek professional advice
Financial Practice 1: Failing to Budget
Failing to budget is the top financial practice that business owners make and why their businesses fail. Everyone hates the word “budget,” so let’s think of it as a financial plan. We know that without a plan, we are not as efficient, and a budget is the same way. Without a budget in place for your business, you run the risk of underestimating the costs associated with running your business. Without a budget in place, you are making your business vulnerable to failure. This is an essential aspect for every company, no matter the size. Your budget is the roadmap that keeps your business on course to its financial goals.
Financial Practice 2: Poor bookkeeping and cash flow management
Proper bookkeeping is the center of every successful business. It doesn’t matter what your budget is if you don’t track your spending and earnings properly. This includes some of our favorite reports, such as, accounts payable and accounts receivable. A company’s viability and productivity are severely impacted if bills aren’t paid on time or unpaid customer accounts aren’t collected in a timely manner. If these neglected or messy books go on for the long– term, the consequences include racking up financial deficits and filing for bankruptcy.
If you have fallen behind on your bookkeeping and taxes, our experts at Elite Business Solutions can help you catch up. If your bookkeeping is behind, you can’t just resume it wherever you want; you need to go all the way back to where you left off because the numbers build off of each other over time.
How do you improve your bookkeeping? If your goal is to do it yourself, it’s going to take a bit of work! However, before taking the leap, we encourage you to read our article about “DIY Bookkeeping.” Meanwhile, if you’re truly in a pickle, it’s a good idea to reach out to an accountant.
Financial Practice 3: Underfunding
If you don’t have enough money when you start your business, you will never make it to the point tit actually becomes profitable. You need a good business plan to determine when you will finally turn a profit and how much money you will need to get there.
To ensure you have enough business funding to make it profitable, you can use your own personal funds or even look into getting a small business loan from the government or your bank.
Financial Practice 4: Insufficient Advertising
Many new businesses think that making standard social media posts will be enough to raise awareness of their business. This is not the case; you should set aside a large portion of your budget for marketing and advertising. Different industries will do better in other areas of advertising, so be sure to do your research on all avenues. Some examples include:
- Printed ads, such as in local newspapers or through direct mail
- Written ads, such as paid Google ads or in print
- Audio ads, such as on the radio
- Video or digital image ads, such as on TV or paid ads on social media
- Sponsorships, such as funding and displaying your logo at a local event
Financial Practice 5: Failing to seek professional advice
Tax laws are constantly changing. Are you staying up-to-date? If your business grows or makes a major transition, how will that impact your finances? What if you face an outright challenge, such as an audit? Business owners usually aren’t financial experts, which is why they benefit from expert insight into their accounts. Companies that insist on doing it solo might end up making poor decisions that damage their long-term viability.
There are many reasons why businesses fail, but these are the most common mistakes why businesses fail and they are all very avoidable.