What is the one thing you absolutely must do to ensure the success of your small business? Yes, that’s right – manage your money well. This is such an obvious principle of business success that most new small business owners miss it.
You can be doing everything right – like running a great product to a hungry market at just the right price point—but if you mess up your finances, everything could unravel fast.
The reason business advisers mention fiscal responsibility is because it makes perfect sense. Money is the measure of how well a business is doing. It’s a way of measuring how much to spend and how much has been earned.
Yet, the reason why many small business owners brush this prosaic advice aside is because it’s hiding in plain sight. All too often new business owners are afire to change the world and aren’t inspired by the idea of counting beads on their abacus.
With that in mind, here are 3 business mistakes to avoid when you start your business.
Mistake # 1. Not accounting for miscellaneous expenditure
Account for all your initial costs when you start, even the miscellaneous ones. It’s often the small fees that trip up a small business when it starts. Business owners are often so vigilant about covering their fixed expenses like rent, utilities, payroll, machinery, and insurance that they forget a few of their variable expenses like business license fees, miscellaneous vendor charges, shipping and packaging costs, etc.
Fortunately, if you have spent most of your money on getting everything set up and missed taking into account a few expenses, the problem is easy to fix. We’re not talking about getting a bank loan (which can be time consuming) or borrowing from family or friends (which can be embarrassing) but about looking into securing instant installment loans.
These types of loans are easy to apply for fast funding and they offer flexible repayment options. You can even apply online since they paperwork is quick to fill out and it’s easy to get approval for these short-term loans.
Mistake # 2. Forgetting to measure ROI
Understand your ROI and how to measure it. In a ball game, you know your team is winning if you are racking up more points than your opponents on the scoreboard. In business, you know you are winning if you have raked in a good return on your investment.
What Is ROI?
Entrepreneur magazine provides an excellent definition of an ROI on their website’s Small Business Encyclopedia:
- Return on investment, or ROI, is the most common profitability ratio. There are several ways to determine ROI, but the most frequently used method is to divide net profit by total assets. So if your net profit is $100,000 and your total assets are $300,000, your ROI would be .33 or 33 percent.
ROI is not Profits
ROI is often confused with profit because there is a close relationship between the two terms. While an ROI can result in a profit, you should think of ROI and profit as different types of measurements. ROI measures how much you get from your investment while profit measures how well your business is performing in the marketplace.
Besides knowing that you have a positive ROI after the fact, you should also be able to estimate the success of a projected advertising campaign before you launch it. In other words, it will be beneficial if you can make a reasonable statistical prediction on your expected ROI. This will prevent you wasting money on things that have a low probability of working out for you.
Reflecting on your winning moves
It’s also important to figure out what you did right to achieve a high ROI. This knowledge will help you replicate your performance. There is no point getting a high ROI but not understanding what variables produced the desired results.
Did you keep your overheads low? Did you catch the wave of market demand? Did you make an irresistible offer to the right target audience? By measuring everything carefully, you can figure out what did the trick.
Mistake # 3. Moving too fast
Don’t move too fast. Starting a business is risky, and sometimes an entrepreneur can get addicted to risk-taking. One way to do this is to spend your way out of your business before it even has a chance to become profitable. Instead of assuming that your seed capital will quickly grow if you are enthusiastic enough, exercise caution. Don’t hire too many people too fast.
Don’t lease out more office space than you can afford to buy ultramodern furniture hoping to create an inspired workforce. Lean toward conservatism in the beginning. Unexpected setbacks could slow your progress. If you have exhausted your reserve funds because you anticipated everything would work out according to plan, it will be difficult to ride out any surprises.
Not everything can be measured
It’s often too easy to get caught up in the mechanics of your business like accounting, bookkeeping, key performance indicators, sales figures, and so on. Tracking business performance is a good thing, but business success is often a result of less tangible things that are hard to measure like a sense of purpose, a vision of what is possible, a mission statement to lock in your sense of commitment, and a belief that you are providing your customers with a valuable product or service. There is much to think about when starting your own small business.