I am a firm believer in learning from mistakes, in fact some of my best business practices and decisions have come from making some almighty errors myself and watching other business owners make them!
The thing I have come to realise over the years is that the mistakes are normally the same from business to business. You know that one friend who is constantly falling head over heels in love and then a few month later crying on your shoulder because it has all gone wrong and you want to scream at her NOT AGAIN!! That’s how I feel when hearing mistakes business owners are making with their finances !
To try and accomplish my lifelong mission to minimise the amount of people who make these mistakes I have identified the most common ones and some of my pearls of wisdom for each one.
1: Not separating your business and personal money.
I am not just talking about separating your bank accounts I am talking about separating all of it. Using your business credit card to buy a new pair of shoes that you have to have by ‘mistake’! Using your own personal credit card for purchasing a business course as you don’t have the money in your business and then forgetting to account for it. Try wherever possible to separate the two. I even have two purses one for business and one for personal (I kid you not!, see the photos on my facebook page if you don’t believe me!), it really helps me separate the two mentally and makes it less likely to use the wrong one. I offer further tips on how to separate everything in the club.
2: Not being realistic about your business finances.
This can range from setting unachievable revenue targets to underestimating the costs of running the businesses. I understand that we need to aim big when doing projections but we really need to be realistic. When completing projections for my bookkeeping business I always make sure I work out what I can actually service, for example I could probably generate an extra £5k a month of income into my business but how will I actually service this? Will I have to take on additional staff? Which means additional costs that I am then committed too? For product based businesses you need to be realistic on the cost of actually making the product. (See my separate blog on calculating your break even point)
3. Burying your head in the sand.
Don’t put off looking at your financial situation. The worse you feel about examining the finances the more you need to do it. Take some time to do a financial audit of your business, if you have some cashflow issues take action, speak to your suppliers, ask your accountant to help and keep motivated by seeking support from others. You can do this.
4. Not setting up a financial system suitable for you.
Do you suffer from shiny object syndrome? Heard that Xero is the bee’s knees for bookkeeping? Got a free trial for 17 hats? Make sure you research and get advice on the best bookkeeping system for you (email me firstname.lastname@example.org for a copy of my guide to choosing the right software) Make sure it does everything you want to do before you spend time setting everything up to discover it doesn’t give you the information you need or that it doesn’t integrate with other software you use.
5. Ditching expenses without any thought process.
When you have hit a cashflow wall, your income has dropped or your sales pipeline is slower than normal, cutting costs seems to be the logical thing to do. But this isn’t like bailing out a boat where you can through expenses overboard without analyzing your options first.
I had a client who urgently needed to cut costs, so she cancelled all of her direct debits, including her business insurance! Although she quickly reinstated that, she didn’t renew her two networking subscriptions, these cost her £60 per month. When we looked into what she had been getting out of that service, we found those subscriptions generated 75% of her new clients. Sure, she’d lowered her running costs, but only by sacrificing a hugely effective marketing strategy.
6. Missing Deadlines!
Deadlines in the finance world generally mean fines and penalties. Set up a schedule of your key business dates. When is your Self Assessment deadline, when does your confirmation statement have to be done? When is your corporation tax due to be paid? To help you plan for your important dates and deadlines, I’ve created a calendar with a list of the key dates you need to find out and record. Put your email address in the box below, head over to your inbox to hit the ‘confirm’ link, and you’ll receive your free calendar + user guide right away.