Cost Of Bad Financial Decisions For Small Businesses
Everyone makes a bad financial decision at some point
. Whether your mistake is hanging onto a stinker of a stock for too long or stumbling into a black hole of credit card debt, recovery is possible.
One of the most important aspects of the salvage mission is having the ability to learn from past mistakes. Though this list is far from comprehensive, it outlines some frequent missteps consumers make as they navigate their finances.
Start-up companies and small businesses have always had a relatively large percentage of failures, which is the ultimate price of making poor financial decisions. Fortunately, many of these business failures can be avoided if those managing the enterprise can keep from making some common financial mistakes.
Bad Financial Decisions made by Small Business Owners:
Many people start their own business with the confident on their ample skills at making a business work on a day to day basis. This is one of the chief motivations for becoming a self employed & to open up a business.
But too much effort is often put into the daily operation of the business, while enough attention is not paid for bookkeeping and accounting practices, which are essential to run a small business efficiently and profitably.
Control over external factors may not be possible, but avoiding simple financial mistakes and keeping accurate records will undoubtedly benefit any small business.
Common Financial Mistakes done by Small Business Operators
Listed below are some of the most common bad financial decisions that the small business owners often make while starting out:
*Undercapitalization:
Many small business starts out with too little capital; this wouldnt come in handy during tough times. Even sometimes the business suffers from too much optimism; when the business is prospering. This can be often caused by inflation, which would lead the company to invest unnecessarily in fixed assets.
*Avoiding to have a Bookkeeper:
One of the big mistake made by small business are keeping of poor records. Even though added expenses are a burden; try to have a good component bookkeeper, who is efficient of keeping the records for a long run.
*Overinvestment:
Over investment in small business is often too dangerous. For instance buying an inventory especially in the case, if the business has any level of initial success. This inventory represents an increased potential source of revenue & suddenly if the sales drop the additional inventory become a stagnant asset.
With the new inventory the business must sell additional sub marginal accounts. This causes the company to carry receivables, which can cause problems with cash flow.
*Lack of Reserves for Contingent Funding:
In light of previous financial errors, the business will lack funding for depreciation of assets, bad debts & other contingencies. Also company wouldnt face problems like to insure against floods, fire, earthquakes, or inclement weather, which would cause considerable damages to the business.
Some Other Factors that Supports Small Businesses:
Another factor which can cause problems for small business is failing to follow a comprehensive business plan; always a detailed business plan with contingencies for any eventuality, could save the business in market downturn and help to prevent bad financial decisions.
Having enough capital at the onset is probably the most important consideration while starting a small business, especially recently. The ability to weather difficult financial conditions with a sufficient cash flow also often makes the difference between going bust and staying in business.
by: Augustine.jo
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