Financial Mistakes Small Businesses Make
Here are six of the most common financial mistakes small business owners make and how to avoid them.
Starting your own business is an exciting time filled with possibility. There are a ton of decisions to be made, from location to hiring and marketing. While many small businesses see success in just a few years, others fail as a result of poor planning and bad financial decisions. The Small Business Administration reports that about two-thirds of businesses with employees survive at least two years, while half survive at least five years. Growing pains are a normal part of any business, and there’s always plenty to learn from making mistakes, but there are some common pitfalls small business owners should be aware of from the start.
Over-Investing — New business owners can quickly become consumed by all of the planning and tasks that need to be done. There may be office space to rent, expensive equipment to buy and plenty of lines of credit available. You should step back, however, and decide what’s really necessary to get the business up and running. At the end of the day, what’s going to make your business successful is a great product and exceptional customer service — not fancy equipment. Focus on what really matters and only invest in items that will help grow the bottom line.
Mixing Personal and Business Finances — When you’re the owner, it can be tempting to mix your personal funds with business ones. Does it really matter if you use your personal credit card or cash to pay for business purchases? Yes, it does. Limiting your personal liability will add credibility to your business and ensure that you aren’t spending more than you have coming in. Open a business banking account and start building credit from the beginning.
Taking on a Business Partner — You know how the saying goes … the best business partner is the bank. Sure, some partnerships work out, but more often than not they fail. Unless you’re thinking of partnering with someone you trust completely, consider hiring great people to help you out instead. That way you’re not giving away equity to a partner who may hurt the business, and you retain 100 percent control.
Thinking Too Small — Rather than just creating a paycheck for yourself, think of the business as a way to build profit. Could you expand your target market, widen your niche or finance a marketing campaign? It’s easy to get bogged down in day-to-day operations, but the best business owners make time to plan and dream big.
Hiring Cheap Employees — You get what you pay for. Going back to No. 3, keep in mind that hiring the right employees will be crucial to your success. You don’t want just anyone working for you, especially someone inexperienced. Hold out for the right people and compensate them fairly.
Focusing Only on One Area — You may only offer one product, but owning a successful business involves a lot more than that. According to Business Insider, most small businesses focus on increasing revenue, but 60 percent see great value in establishing new customer relationships and 46 percent in marketing and advertising. All of these areas need to work in tandem with each other for your business to grow.
MidSouth Bank offers many services, from checking and savings accounts to payroll management, direct deposit and business loans, to help grow your small business. Learn more.