Don't Make Budgeting Mistakes on Day One

Bloomberg found that 8 out of 10 small businesses fail within the first 18 months of starting out. That means that 80% of all small businesses will not make it.

Finances can be tricky - both personal finances and the finances regarding your small business.

On a personal level, 3 common financial mistakes, and the budget to help resolve them, discusses the importance of saving money now, being able to afford your purchases and living within your means. These same principals apply to your business.

Let's look at patterns and trends within failing businesses - in others, what not do to if you're starting a small business.

Common mistakes business owners make

  • Not understanding cash flow - Many small business owners do not understand basic accounting principles. This is vital in knowing how much cash is coming in, how much cash is going out, and what your overall profit and sales are. Learn the "money" part of your business - and learn it well.
  • Being "busy," but not productive - Small business owners become really good at multitasking, but are they getting anything productive done? Set goals each day for what needs to be accomplished, and stick to it.

Tip: Try to get your "musts" done before responding to emails, checking your Facebook account and adding to your list.

  • Not connecting with the customers - People love loyalty and businesses they can view as friends. Our lives are a series of connections - connections to the earth, to products and ultimately, to people. Find a way to connect to your market and build relationships. This is what keeps people coming back and what allows your business to grow.
  • Getting into too much debt right away - Though it's tempting to want to take out a loan for your business or borrow from family members, try to avoid this as much as possible. Instead of starting out with massive amounts of debt (and massive monthly payments), save up as much as possible before opening shop.
  • Not having a long-term plan - Most business owners prepare for the first few months of their business, but those that are successful plan for the first few years. Consider challenges you may run into (cost of hiring employees or renting out a space), how you'll market long-term, how you'll grow your business and what your financing needs will be long-term.
  • Over-hiring - Most small business can start with just you and possibly out of the comfort of your own home to save on renting a space. If you do need extra help, hire as few people as possible. It's important to see how well your business will perform over the first few months before hiring additional employees.
  • Expecting too much, too soon - Business owners tend to have the mindset that they'll be able to get rich quick and have a successful business right off the bat. In the majority of cases, this just isn't the reality. Be realistic and know that it takes time to build a business and grow your fortune. Along the lines of business owner expecting too much too soon, they're also quick to give up. Keep working towards your goal and working on improving it.

As someone running a small business, are you guilty of any of the above-mentioned mistakes?

About the author

Sarah Brooks is a freelance writer living in Charlotte, NC. New to the city, she enjoys exploring the area, trying new restaurants and spending time outdoors. She writes on a variety of topics including small businesses, personal finance and health insurance.


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