Even the biggest industries have made financial mistakes in the past.They are here today because they have learnt from their mistakes and have not repeated them. Let us look at 5 shocking financial mistakes made by small business owners.
Unnecessary spending on overheads is one of the major financial mistakes
When you are new to a business, it is natural for you to start with a shoestring budget. You try to save as much money as possible. One of the small business mistakes companies make is spending on unnecessary overheads. Curtailing you overhead expenses is one of the best ways to make profits. Investing in a laser printer is better than investing in an inkjet printer. This is because you lose a lot of money in buying your refill cartridges in case of an inkjet printer. Your laser printer might cost more initially, but it is a capital expenditure whereas spending on ink cartridges is revenue expenditure. Understanding the difference is the key to success in business. High overhead costs and recurring unproductive expenditure are serious financial mistakes as they reduce Working Capital.
Mixing up your personal and business expenses is one of the common financial mistakes
When you start a new business, you usually start in an informal way. It is natural for you to overlap your personal expenses and your business expenses. As you develop your business, you should learn to keep them separate. Having a separate banking account for your business and personal expenses is the best solution. This can help you keep track of your business profits and expenses. Mixing up the personal and business expenses is one of the most common financial mistakes in India.
Filing tax returns on your own
Taxation is a very important issue. There are many changes to the tax structure from time to time as in the case of GST. There have been innumerable changes in the procedures to follow while filing. Trying to file your tax returns on your own is one the biggest business mistakes you can make. Filing your returns is the job of a specialist. Any financial mistakes with regards to taxation can put your business under the scanner of tax authorities. Hire a tax expert and save yourself the hassle.
In the initial stages, your needs are less. Hence, you should be able to handle the same with your capital. Of course, you might have to borrow from banks, but the funds come at a cost. Nowadays, banks finance small businesses liberally, especially with the CGTMSE cover available to them. This can result in excess financing to the business concern. As a business owner, you should guard against such excess financing. Have a proper budget in place and borrow accordingly. The chances of misusing the funds increase when you have more on your plate. This leaves you with a bigger interest burden. Naturally, it affects your profitability a great deal. This is one of the financial mistakes under budgeting you usually encounter with small businesses in India.
Not planning for retirement:
We agree it can be hard saving money in the initial stages of your business. But, you must have a corpus set aside to take care of your needs when you retire from the business. Earmark a small sum of money towards this corpus. Small businesses make financial mistakes in accounting when appropriating their profits. The superannuation funds are such that the earlier you save money, the smaller will be your initial investment. At the same time, your corpus turns out to be a bigger one. The solution is to plan for your retirement early.
You have just seen some financial mistakes almost all small businesses make. The key to success is to learn from such financial mistakes and avoid making them in the future.