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4weoqrgrc_o | 6 Financial mistakes that ruin your first business and how to avoid them

Avoid financial mistakes

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4weoqrgrc_o: Money management is a vital and most difficult part of a business, especially for aspiring entrepreneurs. Together with experts, we analyze calculation errors, which most often lead to the collapse of your business.

Mistake #1. Not planning income and expenses

One of the key functions of an entrepreneur is the treasury, In business, it is important that all payments are made on time, otherwise reputational and financial damage is possible:

To plan expenses and incomes, keep a payment calendar. It is compiled based on the total budget of the company and the data of the previous period: week, month, quarter, or year. Enter both future payments and expected receipts on the calendar, “to remind the client if he does not pay you on time,” Pay on the very last day, and receive money in advance and as quickly as possible. Then there will always be money in the account, even if one of the counterparties suddenly fails.

To find holes in the budget and more accurately predict financial flows, the analysis of the financial plan “Plan-fact” will help – comparing planned and actual budget indicators with identifying the causes of deviations. The weekly or monthly analysis will help to avoid cash gaps. And quarterly and semi-annual – to find systemic deviations.

Mistake # 2. It is wrong to calculate the profit

Before opening a business, calculate the expected profit. For example, if you get 80,000 $ a month as an employee and would like to have no less from the business, then try to take into account all possible costs and calculate the net profit.

If you are starting a business on your own, decide how many hours per week you are willing to work for your projected profit. Even good earnings are hardly worth an 80-hour work week and no days off – in this mode, there is a high risk of quickly burning out. It’s better to aim for higher numbers: then you can hire one or more employees and free up time for rest.

And have already started a business, keep in mind that not all receipts to the account can be immediately considered your property. For example, an advance becomes the company’s money only after the shipment of goods or the provision of services. The actual profit is calculated by fulfilling obligations and not by the movement of money in a bank account. Thanks to this approach, you can avoid running out of money if you have to make a return on the eve of salary payments or a large payment.

Mistake #3. Only analyze total expenses and income

Consider the difference between cost and price – marginality – for each product or service separately. This will help evaluate their effectiveness. So, one product can bring 80% of the profit, while the other can be a ballast. Knowing the margin of each, it is easier to decide which product to advertise, which to improve, and which to exclude.

At the same time, it is necessary to analyze expenses and incomes by general categories as well: by areas and projects, as well as by the company as a whole.

Mistake #4: Spending too much on services

When choosing services for business, such as cleaning or acquiring, owners often agree to the first available options in order to save time. But if we are talking about a service that the company will receive from month to month, it is worth choosing the most advantageous offers.

Mistake #5. Forgetting to depreciate equipment

Plan the cost of updating production assets. Even a freelance programmer should set aside a couple of thousand dollars a month for a new laptop. And the more expensive the equipment, the more critical it is to have a reserve. If machines, computers, and applications work for a long time, they will become morally obsolete sooner or later – and they still have to be changed.

Mistake #6: 4weoqrgrc_o | Not Considering the Value of Money

4weoqrgrc_o: Money also has value, so if you are investing in a business with borrowed funds, do not forget to take into account how much you will spend on interest payments, as well as inflation.

Otherwise, there is a risk of another serious mistake: let’s say you correctly calculated depreciation, took into account marketing costs, and even provided for a financial pillow. But if an entrepreneur earned 100 thousand dollars a year for the million invested, he worked in vain. “Then it’s better to invest in the financial market with the same level of risk and work for hire,” the expert says.