Article Contributed by Ankit Gupta
We learn from our own mistakes, and sometimes from the others’. But in the case of a small business, you seldom get another chance to commit mistakes as 9 out of 10 startups fail due to reasons only a few bother to unravel. As per the ‘Startup Failure Post-Mortems’ by CB Insights, the polled CEOs revealed a number of reasons responsible for their business’s doom, where financial mismanagement was on the top of the list. The question that arises now is- “What financial mistakes small businesses are committing frequently?” Let’s dig deep into the insights given by the experts and talk out what are those 6 deadly financial mistakes that small businesses often commit:
Mistake #1: Having a weak business plan
Many Indian startups had to shut down their operations during the year 2015 for having a weak business plan that couldn’t serve its purpose well. Due to weak planning, a number of small businesses ran out of funds, and witnessed liquidation sooner; therefore, having a strong and workable business plan is a precondition. Also, you must go ahead on your plan with a calculation that enables you secure an amount higher or at least equal to the funds you have raised from the market.
Mistake #2 : Undermining the web
“As per the non-adjusted estimates released by the U.S. Department of Commerce, the ecommerce sales of U.S. contributed over $341.7 billion during the year 2015.”
The mammoth figures clearly indicate how internet has taken the commerce by storm! However, a majority of small businesses defy this scenario, thus flame out to tap the lucrative benefits of the web. Every small business today needs a separate strategy for the web, and having a website that leads the customers down the sales funnel should be the foremost step in the strategy making process.
Mistake #3 : Not stashing cash for the odd
Not only small businesses, even medium businesses often bask in their achievement of securing high profit margins in their good times. But the time soon tests and those who do not sufficiently stash for the odd times remain highly vulnerable to liquidations. It is even more challenging for a small business to arrange the funds for a rough patch that may suddenly appear on its glory path. Thus, you must regularly save a part of your surplus income to meet your operating expenditure, for the times when your revenues start plummeting.
Mistake #4 : Poor expense management
Generally the small businesses keep a strict vigil to the cash inflows, but often fail to know where their cash is flowing out. This creates an imbalance with the cash flow management and business operations get adversely affected. So keeping strong tabs on the various expenditures would help you assess which processes need to be bailed out for the effective management of the cash as well as other assets.
Mistake #5 : Trusting others prematurely
“Trust takes years to build, seconds to break, and forever to repair”. Well said!
Whether it’s about a business or a relationship, one may end up with regrets while trusting the others prematurely. In a small business, where generally a little sum of money is bagged out of each deal, you’re likely to wanton ample money within seconds just because you may trust a business associate sooner than you should. So rethink, examine facts, and take time to trust someone who is knocking your shutters with the dream offer.
Mistake #6 : Wrong Revenue/Expense Anticipation
Small businesses usually face the problem of miscalculating the revenue as well as expenditure, and ultimately earn lesser and spend higher than they have anticipated. This wrong anticipation proves as a deterrent to the business growth. In such situation, you should prepare a quarterly budget to meet your organization’s financial needs aptly. And once you’re in practice, then you can gradually shift to the annual budgeting for a better revenue / expense management.
If you have ever made the above mistakes and still running the show, then you’re lucky enough. Believe me! Most of the small businesses were never able to recover the losses accounted to the above mistakes, and eventually they had to shut down. So, if your business is in its budding phase and the above mistakes are alien to you, then better take timely and appropriate actions so that you can write own success story.
About the Author
Ankit Gupta owns and manages ExportersIndia.com, One of the largest searchable buyers and sellers business marketplace in India. Owing to his passion for writing, Ankit keeps sharing his valuable insights with marketers of SMEs and start-ups, to keep them upaded with the latest news and trends.You can Follow Ankit on Google+, Twitter or LinkedIn to get more updates related to business.