How to Escape the Most Common Financial Pitfalls in the Stages of Business

_escape financial pitfalls

In each of the stages of business, you, as a small business owner, are confronted with financial pitfalls that can prevent your company from growing.

It’s like going through a Halloween haunted house and not knowing what’s around the corner (and knowing that you can’t punch whatever it is because *ahem* you paid to go and lawsuits.) It’s not cool or fun, but there’s good news—we’ve got you covered.

As your company grows, the financial playing field becomes more complex, and so you as the CEO must up your game to meet these challenges head-on. Long-term sustainability is a result built on strategy and effective decision-making. By implementing the right course of action, you can navigate these treacherous waters and weather the storm financially.  We will take you through the various growth phases a company reaches in its lifespan and examine the obstacles likely to get in your way so that you can avoid them.

Financial Pitfalls in the Early Stages of Business

Budgeting

When launching any startup enterprise or venture, it is so easy to overlook the costs involved. These are the financial pitfalls you need to be on the lookout for. You must recognize all from tax registration fees to itemized contents of your office. You will discover that some of these costs are once-off initial expenses, like purchasing a point-of-sale system or credit card facility. The residual running costs fall under your monthly overheads, such as the rental of your premises or your electrical and data line charges. Lastly, the annual costs may include accounting and legal fees and the end-of-year bonuses paid to your staff (that’s why they love you so much).

No matter what stage of business you’re in, it’s common for many new business owners to self-fund the launch and initial running costs of their operation. Still, without any knowledge or prior experience, one is prone to overlooking certain expenses, which can be devastating in the long run resulting in a reduction of your cash flow, the life-blood of any business.

Cash Flow

Get in the flow of knowing where your cash is (and we don’t mean under your car seat either). Managing your growth expectancy is vital in your new company’s developmental phase. It may take several years before the business becomes profitable and can be a daunting prospect to many. For this very reason, startups are often funded by outside investment or while the owner is working full-time elsewhere and can provide the necessary monthly capital to feed the business to get it off the ground. So you need to ensure that your time and money are being spent in the correct areas to meet your targets of breaking even and eventually becoming consistently profitable.

As your small business gradually generates money and increases its client base and market share, you will need to precisely track your revenue streams so you can get an accurate reading of your progress. Your risk analysis for future decisions is determined from the incoming and outgoing invoice data you collect, so be sure to use a centralized accounting software solution to automate tasks like financial reports, which will assist you in this process.

Marketing

Facebook ads. Instagram ads. Billboard ads. Missed connection ads? A consistent marketing strategy with in-depth analytic feedback is crucial to reaching your goal of a self-sustaining business model. What this entails is a sequence of tangible steps to promote your services and target potential clientele. Practicality is the key here. You’ll need to gather accurate data from your marketing campaigns and create realistic timelines and goals before taking the plunge.

The most common marketing mistake made by a new business of any kind is not doing sufficient research initially to ensure you are spot on—targeting your audience on the most effective platforms.  This is true no matter the stage of business you’re currently operating in. Ever got an email advertising Twinkies or M&M’s before? Probably not, because the target audience, kids, don’t have email accounts, so the campaign isn’t compatible with the platform, and therefore the resulting data collected would also be completely irrelevant.

Knowing where to reach your new potential customers is half the fight. Businesses worldwide throw away endless capital desperately trying to find new clients to stay afloat­–so be strategic, as a poor return on investment from your marketing can cripple your cash flow. It can also give you a false reading on where your business is, so keep this in mind.

Financial Pitfalls in the Established Stages of Business

Accounting

Falling asleep on your books is inexcusable, but this is a common problem in businesses—even in more established enterprises and franchises. As small business owners, we often get so swept up in the day-to-day operational duties and personnel management that we start to neglect the very heart that keeps the entire process going, the delicate balancing act known as bookkeeping. As your company expands and grows in this stage of business, you might take on new employees or acquire new equipment to cope with your increased workload. When you move into this stage, it is crucial to keep a vigilant eye on your expenditure, track every supplier invoice, and digitally file every payslip with an automated software solution.

A regular, transparent financial reporting system will prevent any financial pitfalls in this area, which is why so many companies use external accounting services. *raises hand* Apart from the time and cost, an in-house bookkeeper requires more hands-on supervision and an incentivized salary with healthcare and benefits. An accounting firm or agency, on the other hand, will consult and design a package to fit the specific size and growth trajectory of your company (like a beautiful rainbow that ends with a pot of gold and little, tiny men with beards).

Staffing

At this stage of business, your company will only grow at the rate it is allowed by its employees. Timing is everything when it comes to hiring the right people in positions where they will thrive. A thorough and proactive recruitment policy will save you countless hours and a considerable amount of money in the long run. In many cases, a sudden influx of good business and regular clientele can put you on the back foot, forcing you into the mode of putting out fires and considering stopgap hiring. This must be avoided at all costs, as you have now reached the slightly more established company growth level. You don’t want to be stuck with temporary workers or small business employees who aren’t planning to make a career within your business.

Planning sometimes six to eighteen months or more in advance and actively headhunting the people you want to work with is the best solution. We get it, that seems like a long time ahead, but it’s much needed. Simply posting a vacancy on Craigslist or sending out an SOS on social media is a very tedious and haphazard recruitment method, as you can spend weeks screening applicants without ever finding anyone suitable for the position (and that is not super fun).

Regulations

Death and taxes may be unavoidable (the financial pitfall no one wants), as will the end of your business be, should you fail to pay these taxes. There are certain aspects of running your business that is government-regulated and must adhere to specific standards. It could be paying sales tax, income tax, or the license fee to operate your business, depending on your industry. Apart from these, there are also humanitarian laws protecting your employees from exploitation and prejudice. If you seek to cut corners or fail to operate within these ethical guidelines for whatever reason, your business is doomed.

If you find yourself overwhelmed, the solution may be to have these essential aspects of compliance externally managed by a specialized company or vendor. Crucial human resource matters such as processing payroll, workers insurance, and tax filing have severe financial penalties if any errors are made in the process. It might be an idea to leave this one to the pros, as they say.

 

Financial Pitfalls Restricting Further Growth

Expansion

Isn’t growth the main focus of every business? You might ask, and yes would be the immediate answer. However, as your company expands, it must do so sustainably. Your business comprises multiple moving parts, including its staff, overheads, client base, and market share. These compartments have specific needs and quirks that require careful nurturing and management for the whole company to run smoothly.

Before setting up multiple branch locations or offering international shipping, you must assess each aspect of your company to ensure it is ready for this new move you are about to make. We believe you deserve to go global, but maybe let’s rein it in a bit before you go worldwide.  Your company should be able to run itself almost entirely from a managerial standpoint before you seek to fulfill those mogul-Esque ambitions (but we like where your head is).

Progress Measuring

At this successful stage of business, from the most prominent company, all the way to the smallest, and anything in-between, they became profitable by measuring their progress by analyzing reported data and making future decisions based on the accurate assessment of this process. It could be a high-profile members-only quarterly board meeting to keep your investors informed of your company’s performance or simply recording data from your customer reviews on Yelp. Without a thorough assessment, you may easily overlook some critical problem areas, shortcomings within your business infrastructure, or other financial pitfalls that could mean eminent business failure.

You may offer quality services to a good and loyal client base, but mismanagement problems are incredibly unforgiving. In business, contracts, loan agreements, leases, and significant acquisitions are usually impossible to back out of two or three months down the line when you realize you weren’t financially ready and made a bad call. Remember to do your homework and seek legal advice before signing long-term contracts.

The most important thing to remember when looking at the different stages of business your company may find itself in is that you do not need to do everything yourself. You are a superhero, but even Wonder Woman needs a nap and martini. Many financial pitfalls come about simply from a lack of delegation of tasks and attempting to do everything ourselves. An external financial service provider like Alchemy Accounting will alleviate some of the rather tiresome but necessary duties, so you can focus on what matters most. We are here to help you with the future growth and progress of your business. It’s kind of our thing.

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Michelle Cooper

Michelle Cooper is a powerhouse entrepreneur, CEO of Alchemy Accounting & Bookkeeping, author of Confessions of a Money Rock Star, Your MoneyDate Journal, and co-author of the collaborative book, Women Rising. She has helped many business owners climb out of entrepreneurial poverty into the land of profit.