Hello readers, its a bright new day, another business day as a matter of fact. This week i will like to share with you some avoidable pitfalls you stay away from in business, for your business to succeed. Just as easy as it is for a business to sail, it could also easily sink.
Infact, experts say it's easier for a business to fail than for it to float. They say in order to avoid financial problems and money management difficulties, you need mechanisms that will help you control your spending. People sometimes get into trouble because they don't know where there money is going.
According to them, you can list all your income and expenses and find a way to increase your income and reduce your expenses and reduce your expenses.
Avoid spending for luxury items and other unnecessary things. If you have money set aside for emergencies, it can help you to avoid more debt in the future.
While there are a number of factors that contribute to the development and maintenance of a successful venture, one of the most challenging for first-time business owner is effective financial management.
Whether you are securing investment capital, separating your personal and business finances, managing cash-flow, or planning for growth, there are a number of common pitfalls that can hinder the success of your business.
Some of the steps that business owners can take to avoid financial mistakes, according to experts include:
Start Paying Yourself First
Develop a process that allows you to save money automatically. You can ave money in a savings account with automatic deductions from your paycheck. Automatic deductions can also be taken out to start an emergency fund. This money can be used for car repairs and minor emergencies. Just about everyone uses debit or credit cards for one thing or another, but when you have an emergency fund it helps reduce your credit card usage.
Get a Budget Worksheet and list all sources of Income
You can get a budget worksheet on the internet,check this link for a typical example: http://christianpf.com/free-printable-budgeting-worksheets/ . List your income after taxes have been taken out. Income can come from a variety of sources including wages, interest, rental income or retirement income and pension income. In a standard worksheet, there are eight different income sources you can fill in. The total will be calculated automatically.
Make a List of Fixed Expenses and Enter Into the Budget Worsheet
Fixed expenses are those you incur regularly, such as mortgage payments, rent, interest service, auto insurance, utility bill and garbage collection fees. Some of these expenses remain the same while others vary. For those that vary, enter a monthly average. The budget worksheet will automatically calculate your total fixed expenses.
Compile a list of variable expenses and enter them into the budget worksheet:
Some variable expenses will include credit card payments, clothing, laundry, transportation, lunches, cosmetics and entertainment. Variable expenses will change from month to month.
Review Your Total Monthly Net
At the bottom of your budget worksheet you will see the total monthly net figure. If this figure is positive, it means you earn more than you spend. When this figure is negative, it means you are spending more than you are earning. If it is negative, the total monthly net figure will be displayed in bright red and preceded by a negative sign.
Increase Your Income
Try to find ways to increase your income. You may want to work an extra part-time job or work overtime. If you receive any bonus, incentive, pay-raise, add it into your savings account or pay down credit card debt. Sell unwanted possession, so as to reduce your expenditures. You may also need to cut down on your entertainment costs.
Contact Consumer Credit Counseling Services
You can speak with a certified trained counselor who will provide you with tips and techniques to save money, eliminate debt and avoid financial problems in the future.
If you are planning to rely on your savings, personal credit cards, or cash reserves to start a new business, then take care to avoid over-investing in unnecessary infrastructure, luxuries etc. Young entrepreneurs often fall into this trap. They rent an expensive office and buy exotic cars. Instead, focus on building a superior product and providing exemplary customer service. Invest in items that will provide value for your customers and generate returns for your business. If you need to outfit an office, purchase discounted goods, rather than expensive new furniture and equipment.
Consider Your Debt-to-Income Ratio
This is especially difficult for young business owners who may have outstanding loans or substantial credit card debt. Your chances of obtaining a business loan at a reasonable rate of interest are significantly diminished by debt, even if your business plan includes enough projected income to pay off your financial obligations in a reasonable amount of time. If possible, focus your efforts on paying off your debt before you go into business.
Separate Personal and Business Finances
New small-business owners are frequently tempted to cut corners and utilize their personal financial resources to pay for business purchases. But if you hope to build credibility for your business and limit your personal liability, then you must keep your business credit separate from your personal finances. Begin by opening a business current account where you have the ability to cover your tax obligations. When you're ready to start building business credit, set up vendor credit accounts with your suppliers, and make sure to pay your bills on time.