Running a business is a learning curve. You are going to learn so many things along the way, and you will make a lot of mistakes too. It is a natural part of the process. However, one area where you most certainly want to limit your errors is with your finances. After all, nothing can derail your business quicker than financial mistakes. With that in mind, read on to discover some of the most common monetary errors and misjudgements that companies make so that you can avoid doing the same thing.
Hiring too much overhead – One area whereby a lot of financial errors are made is in regards to employment. Yes, people bring money to your business, especially if they serve customers, build products, or they work in sales. You can always justify adding more people to these roles if they are bringing more to your bottom line. However, you need to focus on the employees that do not actually make your business any money. Of course, there are going to be roles that are necessary in this regard, but you do need to keep your costs to a minimum here. After all, this is a business expense – there is nothing being generated in return, and so to have too many people in these positions can very damaging.
Failing to put measures in place to prevent downtime – If there is one thing that costs businesses a large sum of money, it is downtime. After all, when you are offline, you are not going to be able to connect with your customers or to go about your daily operations. This can be incredibly frustrating. But there are different measures you can put in place to prevent downtime, or at least, to get back online as soon as possible. This includes having a back-up power system readily available by connecting with companies such as Rental Power. You should also make sure that you have a risk management system in place should anything go wrong with your servers or computers.
Counting on one major source of revenue – They say that you should never put all of your eggs in one basket, and this is most definitely the case. If you only rely on one source of revenue, you are putting your business at risk. Yes, everything is great while this customer is ordering lots of products or using your services on a regular basis. But what happens if this business suddenly goes bankrupt? What if they decide they want to move in a different direction and use a different supplier, and nothing you say or do will change their mind? You are going to find yourself in a position whereby you have barely money coming in. how are you going to pay your staff? How will you pay your bills? How will you generate any money? Yes, you can look for new clients, but this takes time, and so you are going to have a period whereby you are not making any money, only losing it. You can mitigate this risk altogether by having a number of clients. This will mean that if something goes wrong with one client, it won’t have such a big impact on your overall revenue. Yes, you will need to look for a replacement, but while you do, you will have money coming in from your other clients.
Getting your prices wrong – Pricing is definitely one of the most difficult aspects about running a business, but you need to get it right. A lot of people reading this will be assuming that getting the pricing incorrect means charging too much and putting customers off. Yes, this can be a bad move. However, pricing too low is just as damaging, if not more so. You can always bring expensive prices down, but it is much harder to raise your prices. If you have priced your goods too low to begin with, you are saying that this is all your products are worth. You are essentially cheapening your service or the products that you sell. You need to charge what your products or services are worth. If your prices are fair and people are getting value, they will pay them.
Borrowing money you don’t really need – Last but not least, a lot of business owners fall into the trap of borrowing money simply because they have been offered it. While it is likely that you will need to borrow some funds to get up and running, you should only borrow money when you genuinely need to. If you borrow funds just because they have been handed to you on a plate, all you are doing is increasing your expenses because you will need to pay the interest charges when paying off the loan. Yes, having more cash reserves may mean you can make more quickly, but it is always better to do this within your means when possible.
As you can see, there are a number of different common errors that businesses make when it comes to their finances. If you can wipe out the errors that have been mentioned above, you can give your business the best chance of surviving and thriving. After all, finances are the lifeline of any company. If you run out of money, you won’t be able to take advantage of any opportunities and move forward. Make sure you implement stringent financial management at your company to guarantee success.