5 Common Money Mistakes Entrepreneurs Should Avoid
According to the Small Business Administration (SBA), approximately half of all new companies will fail to make it to five years. Several factors can determine a company’s failure, which you must become aware of to secure your venture’s survival.
To ensure your business enjoys great longevity, here are five common money mistakes that every entrepreneur must aim to avoid.
1. Insufficient Cash
Every entrepreneur must have a cash reserve in the bank, which a business can rely on during a financial emergency.
A rainy-day fund can help your company to immediately repay an unexpected bill, so it can quickly overcome a financial obstacle.
So, if you have an insufficient cashflow, you must find ways to raise funds, so you will be able to tap into a sum when needed.
2. Overspending
Most entrepreneurs can easily overspend when launching a new business venture. For example, they could purchase too much inventory, hire too many members of staff, or invest in expensive equipment.
While you might believe the above actions can help you to generate a great return on your investment, it could quickly drain your finances and might destroy your company before it has even begun.
Instead, you must develop a realistic budget and identify ways to reduce your expenditure. For example, you could:
- Build up your inventory over time
- Outsource over hiring permanent staff members
- Purchase second-hand equipment
- Set a monthly budget
3. A Failure to Compare Prices
Many entrepreneurs make the mistake of accepting the first vendor they can find or settle for an energy supplier. However, every nickel and dime matters when running a company, which is why you must routinely compare supplier prices to save money each month.
For example, you can compare business energy prices from major suppliers to secure the best deal for your needs and budget.
4. Under-pricing Your Products/Services
Developing a price point for your company’s goods or services can be a difficult decision.
If you charge too much, a potential customer might be more likely to turn to an industry rival. However, if you fail to charge enough, you will receive little profit or could even lose money.
Unfortunately, many startup companies make the mistake of charging too little for their products or services, as they might believe the tactic could help them to secure more customers.
To ensure you don’t underprice your way out of the market, you must:
- Compare your prices to your competitors
- Consider your labor costs
- Factor in advertising fees
- Review office expenses
- Include shipping fees
- Analyze maintenance and repair costs
Unless it makes smart financial sense, never attempt to be the lowest priced vendor in your industry. What’s more, you must annually review your pricing structure to generate a healthy profit each year.
5. Poor Debt Management
Unfortunately, spiraling debt can lead to financial hardship. As a result, a company might have no other option but to shut down for good due to insolvency or bankruptcy.
If you have secured a business loan to kickstart a venture, you must aim to quickly repay the debt to ensure you have more money to inject back into your business. For example, regularly make overpayments on a loan, or find a private investor to financially support your budding venture.
Category: Business and Politics
