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Any new business that requires funding for machinery, equipment or labor, is subject to certain difficulties. Now more than ever, companies are struggling to find adequate funding, which means that taking care of finances is becoming ever so more apparent. The speed that your business grows depends on numerous factors but one of which is the way in which you prioritize funding and take care of your company’s finances. Here are some common mistakes to avoid.
Credit cards pose a problem
New Entrepreneurs, Please Note: According to financial advisors, extravagant purchases using the business credit card are one of the known reasons for financial failure. You do not have to be a business owner to fall into the honey trap of credit cards. Many of us tend to refer to them as “out of nowhere”, and psychologically, it is easier to spend money with a credit card than to pay in cash. When it comes to a new business, financial extravagance using credit cards is very risky. Without noticing you may find yourself in the red, even if “on paper”, the business is profitable. How do you make sure you do not overdo it with credit card shopping? In many cases, financial advisors will recommend using an instant debit card instead of a regular credit card. Perhaps you have already used your credit card for purchases related to your business. You may have needed to purchase something specific such as tungsten carbide bushing or an oscillating saw (if you are in construction).
Lack of readiness for crisis
Life is unpredictable, as we have all had to discover recently with the advent of Covid-19. No one is immune to the economic crises, even the good ones among us and you will be surprised to hear – this may happen to you too and not necessarily your fault. But why do some businesses manage to get out of the crisis relatively easily and others fail? Experienced business owners who have experienced financial crises in the past, tend to be overly cautious in their expense funds and regularly keep in the bank account the amount of expenses of about 3 months, for any trouble that may arise.
Lack of a clear and pre-defined budget framework
This is an important rule in the field of financial advice – every business needs a budget plan and it is the only one that will determine how much you will spend each month (this rule is also important for household management). Simply put, a business plan with a budget framework will help you understand what are the financial resources available to you and how much free money you have in the account (and also how much will be at the end of the month). In the process of building a budget framework, expenditures must be defined and classified by areas, such as: Purchasing equipment, investing in advertising and marketing capabilities, recruiting staff, regular payments and more, and calculating them both separately and as part of the total expenses.
So be sure to look after your money well and avoid any problems as the road goes along. The current crisis is crippling many companies which is why it is best to tighten your belt and focus on the positives.