small business finance mistakes
small business finance mistakes

4 Small Business Finance Mistakes to avoid

The purpose of this post is inform you about some small business finance mistakes to avoid at all cost.

It is advisable to note these small business finance mistakes so you are aware whenever they start becoming evident in your small business. The wisdom here is to gain the understanding and eliminate them immediately they start.

1. The Top of the list of small business finance mistakes is having No Monthly Bookkeeping.

Irrespective of the size of your business, inaccurate book keeping creates so many issues that will certainly affect cashflow, business planning and decision making. It is understandble that most small business avoid costs by all means, but keeping proper books should be regarded as an

small business finance mistakes

small business finance mistakes

investment rather than a cost. I say this because I have a 1st hand knowledge of the damage that can be done, if a small business owner avoids proper and regular book keeping. If you are still struggling, I suggest you outsource the book keeping job to a relatively young accounting firm rather than employing an accountant.

This is one of the small business finance mistakes that can actually crash any business whether big or small.

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2. Among the Small Business finance Mistakes is having No Projected Cash Flow.

If you don’t keep your books, you won’t know where you have been and if you have no projected cash flow then you have no idea of where you are headed. Small businesses often disregard these sort of advice and operate without keeping their books on a monthly basis, talk less of having a projected cash flow and what happens next, the small business starts dying gradually until it reaches a crisis state before the small business owner seeks a small business coach who will come perform some sort of miracle.

Let me point out that it is important that your projected cash flow remains both realistic and motivating, so as to avoid any form of discouragement.

3. Inadequate Working Capital is one of the Small Business Finance Mistakes

Think about it? Will this blog be functional if money was not paid to the hosting company? or would you be reading this if you didn’t get on the internet by paying your ISP? That is the way the world works, just because you have a great idea does not mean it will fly without some funds to do a few things before the big break.

This also means that no amount of book keeping or cash flow projection will grow the business, if you don’t have adequate working capital to run the business. That is why it is advisable that you create a cash flow forecast for the business from inception. Entrepreneurs are known to be overly confident so they start off believing all will be well, but for a vast majority of people it does not just work out – I am guilty of this also, I have started a couple of businesses that failed and one of the small business finance mistakes I made was that I assumed that investors will come around in no time, boy was I wrong?

Do your research and you will find out how inadequate cash flow will ground any small business. Fate Foundation advises that you should have between six to 12 months of the cash needed to run the proposed business.

4. The Last of the small business finance mistakes, is having No Financing Strategy

Well, I know this point is a bit controversial because some people have this mindset that it is “evil” to use other people’s funds for business so they won’t start a business with a financing strategy in place. Personally, I have no issues with running a business on borrowed funds as long as the vision and mission of the business is intact.

Here are 2 key reasons of having a financing strategy in place

  1. It can serve as contigency funding incase of the unexpected
  2. It can support present and future cash flow requirements.

It is very easy to assume that finance will show up when needed, well you might be wrong. It is far better for a small business owner to have a financing strategy than not to have one. Irrespective of the reason not having a flexible financing strategy in place is indeed one of the major small business finance mistakes.

That said, a credible and workable financing strategy may not be possible if any of the other 3 points above is absent and the reason is simple, they are all building blocks for a financially sound and stable small business.

Avoiding these small business finance mistakes will help take your business to the next level.