For many small and medium-sized businesses, finances can be a real Achilles’ heel. Many a business has been ruined by poor financing and the financial challenges that come hand in hand with fast growth.
Often the correct course of action is missed, victim to a lack of financial planning or a lack of expertise.
Some of the most common problems include:
Borrowing money for no reason
Just because you have access to credit doesn’t mean you need to use it. Often a bank will offer business credit facilities through an overdraft or credit card, but using this unplanned borrowing can add a large burden to your business finances.
Instead, only borrow money when you have a specific plan in mind that will expand the business and pay for itself in time.
Failing to maintain appropriate reserves
In the same way a car requires fuel, your business requires money to run. Anyone who only carries enough fuel in their car to get them from A to B is going to break down any time they take a detour.
The cash reserves that you hold are an essential tool for handling unexpected expenses or taking advantage of unforeseen opportunities. Smaller businesses often fail to take into account these potential fluctuations in cash flow, and in the worst case scenario can be forced to close in response to unexpected problems.
Getting into trouble with payroll taxes
When you take on staff you become responsible for collecting taxes on behalf of the government. Often businesses fail to set aside this money in a separate account, instead mixing it up with other finances. Losing track of this liability is easy and can leave businesses open to fines and penalties.
Not capitalizing on success
Most of these mistakes are the result of making mistakes handling money, or taking on too much debt, but sometimes businesses suffer because they don’t take on enough risk. The key isn’t to never take on debt but to only do so when your strategy allows for it and benefits from it.
Often when businesses grow quickly they have opportunities to expand further and faster; but only if they can access more capital to buy equipment or make other investments. This is a good time to take on debt: investing in the future of your business.