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5 Common Money Mistakes Small Businesses Make
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Plenty of factors can contribute to a business venture's demise. Sometimes it's a lack of consumer interest; other times it's a matter of bad marketing tactics. But perhaps the most deadly contributor to startup failure is not knowing how to manage your business finances.
"In many instances, [financial mistakes] are due to poor financial planning on the front end of starting the business," said Marc Price, business author and director of operations at ExpertBusinessAdvice.com. "Entrepreneurs underestimate the true costs of launching the business. Subsequently, working through initial growing pains that may transpire after the doors are open can be threatened without proper funding."
Not having enough cash reserves. Entrepreneurs know that they'll probably need money to invest in the setup of their business, but it may take several fiscal quarters to realize a steady income from the company, let alone to make a profit. So start with adequate operating cash. Don't fool yourself with wishful thinking that the money will somehow be there.
Being plastic dependent. Some small business owners are forced to turn to credit cards for early stage survival, especially when they haven't planned properly. Credit cards carry high interest charges and annual fees. Whether through a small business loan, a capital infusion or your own funding, ensuring sufficient operating capital can save you from getting into credit card debt.
Mixing personal and business finances. It's tempting to cross the line, but keep these two entities completely separate. It makes it easier for accounting, budgeting and reconciling both sets of books, and assists in determining actual profits and losses for the business.
Shorting yourself on compensation. In the early stages of business, it may seem like a solid decision to redistribute any and all of your profits back into your business. But not compensating yourself along the way could harm your personal finances and financial good standing.
Not having an organized accounts receivable system. Print your payment terms on the back of every invoice, and follow a clear process in collecting payments. Make sending prompt reminders part of your business.
by Nicole Fallon, Business News Daily Assistant Editor
businessnewsdaily
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