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Common Financial Mistakes Small Businesses Make

Business

Starting a business is no easy feat, and for many, the financial side of things can be the most confusing and overwhelming part of it all. Setting your business up for success means ensuring that you have your finances in order so that you can maximize your profits. All too often, though, small business owners make various financial mistakes that hinder their profitability and hinder their ultimate success. Here are 6 common financial mistakes small businesses make and how to avoid them.


1

Paying Too Much Tax

Every business has legal obligations to pay taxes, but many end up unknowingly overpaying, simply because they aren’t structured properly and because business owners try to save money by not hiring a qualified tax accountant to help them. What they don’t realize is that they may actually save money by spending a little extra to find a competent and qualified expert to handle their taxes and ways to (legally) maximize their savings opportunities. As a business owner, you can make this process easier by staying organized and keeping all receipts and financial documents in order.

2

Taking on Too Much Debt

Almost every business owner will find themselves having to take on some form of debt in order to start and run their business. However, it is crucial to be cautious of how much debt you take on and the stipulations that come along with it. Taking on heavy, high-interest debt can easily cripple a new business. If your business needs to take out a loan, be sure to make sure you don’t take on more debt than absolutely necessary and make a repayment plan in advance. Also consider finding alternatives to loans such as small business grant programs.

3

Not Paying Attention to Your Business’ Credit Score

Did you know your business has a credit score, too? Many people are unaware that businesses have their own separate credit score and that it is equally as important as their personal credit score. Building a great business credit history is essential to securing loans and even to working with certain suppliers. Just like your personal credit score, you can check your business’ credit score at all three major credit bureaus (Experian, TransUnion, Equifax). Note that, unlike consumer credit reports, which can be accessed for free once a year under federal law, business credit reports and scores are not required to be offered for free, but this shouldn’t dissuade you from making monitoring your score a top priority.

4

Making Impulsive “Glitzy” Purchases

Particularly during the start-up phase, it’s easy to get carried away by the excitement of things and make purchases that are excessive and unnecessary. If you find yourself getting swept away with accessorizing your office, ordering loads of branded merchandise and promotional materials, or business cards on extra fancy double-thick card stock, it’s time to take a step back and reassess your spending priorities.

Remember that every dollar you spend affects your bottom line, so before ordering custom furniture or an expensive coffee machine, assess whether these purchases will actually affect the success of your business in a measurable way or if you can find a more affordable alternative.

5

Cutting Costs Rather Than Increasing Revenue

When things get tight, it is most business owners’ instinct to find ways to cut costs. Often the first thing to be cut is a business’ marketing efforts, which can just lead to an even further loss of revenue. Instead, consider taking an alternative approach and figuring out why you aren’t generating enough revenue and how you can change this. Is your business not getting enough exposure? Are customers coming through your doors but leaving without making purchases? Are your products/services priced too low? Once you identify why you are not generating revenue, you can make adjustments without making drastic cost-cutting efforts.

6

Not Having an Emergency Fund

Even successful, established businesses are not immune to slow periods, so it is essential that you prepare your business to avoid any cash flow problems. If you have no savings available, you could find your business quickly swallowed up. To avoid any issues paying employees, vendors, rent, etc. be sure to keep 2-3 months of operating costs on hand so that you can survive slow periods and stay one step ahead of the game.

A business owner has to do everything they can to beat the odds and ensure the success of their business. Avoiding these common mistakes will help put you ahead of the competition and, ideally, lead to quicker profitability and growth. Always keep your bottom line in mind and pay careful attention to your finances so you can avoid stress and focus on the growth of your business.

3 Min Read
Business

Five Essential Lessons to Keep in Mind When You're Starting Your Own Business

"How did you ever get into a business like that?" people ask me. They're confounded to hear that my product is industrial baler wire—a very unfeminine pursuit, especially in 1975 when I founded my company in the midst of a machismo man's world. It's a long story, but I'll try to shorten it.

I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up—even if it involved a non-glamorous product. I'd been fired from my previous job working to become a ladies' clothing buyer and was told at my dismissal, "You just aren't management or corporate material." My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.

Over the years, I've learned quite a few tough lessons about how to successfully run a business. Below are five essential elements to keep in mind, as well as my story on how I learned them.

Find A Need And Fill It

I gradually became successful at selling various products, which unfortunately weren't profitable enough to get me off the ground, so I asked people what they needed that they couldn't seem to get. One man said, "Honey, I need baler wire. Even the farmers can't get it." I saw happy dollar signs as he talked on and dedicated myself to figuring out the baler wire industry.

I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up.

Now forty-five years later, I'm proud to be the founder of Vulcan Wire, Inc., an industrial baler wire company with $10 million of annual sales.

Have Working Capital And Credit

There were many pitfalls along the way to my eventual success. My daughters and I were subsisting from my unemployment checks, erratic alimony and child-support payments, and food stamps. I had no money stashed up to start up a business.

I paid for the first wire with a check for which I had no funds, an illegal act, but I thought it wouldn't matter as long as I made a deposit to cover the deficit before the bank received the check. My expectation was that I'd receive payment immediately upon delivery, for which I used a rented truck.

Little did I know that this Fortune 500 company's modus operandi was to pay all bills thirty or more days after receipts. My customer initially refused to pay on the spot. I told him I would consequently have to return the wire, so he reluctantly decided to call corporate headquarters for this unusual request.

My stomach was in knots the whole time he was gone, because he said it was iffy that corporate would come through. Fifty minutes later, however, he emerged with a check in hand, resentful of the time away from his busy schedule. Stressed, he told me to never again expect another C.O.D. and that any future sale must be on credit. Luckily, I made it to the bank with a few minutes to spare.

Know Your Product Thoroughly

I received a disheartening phone call shortly thereafter: my wire was breaking. This horrible news fueled the fire of my fears. Would I have to reimburse my customer? Would my vendor refuse to reimburse me?

My customer told me to come over and take samples of his good wire to see if I might duplicate it. I did that and educated myself on the necessary qualities.

My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.

Voila! I found another wire supplier that had the right specifications. By then, I was savvy enough to act as though they would naturally give me thirty-day terms. They did!

More good news: My customer merely threw away all the bad wire I'd sold him, and the new wire worked perfectly; he then gave me leads and a good endorsement. I rapidly gained more wire customers.

Anticipate The Dangers Of Exponential Growth

I had made a depressing discovery. My working capital was inadequate. After I purchased the wire, I had to wait ten to thirty days for a fabricator to get it reconfigured, which became a looming problem. It meant that to maintain a good credit standing, I had to pay for the wire ten to thirty days before my customers paid me.

I was successful on paper but was incredibly cash deprived. In other words, my exponentially growing business was about to implode due to too many sales. Eventually, my increasing sales grew at a slower rate, solving my cash flow problem.

Delegate From The Bottom Up

I learned how to delegate and eventually delegated myself out of the top jobs of CEO, President, CFO, and Vice President of Finance. Now, at seventy-eight years old, I've sold all but a third of Vulcan's stock and am semi-retired with my only job currently serving as Vice President of Stock and Consultant.

In the interim, I survived many obstacles and learned many other lessons, but hopefully these five will get you started and help prevent some of you from having the same struggles that I did. And in the end, I figured it all out, just like you will.