Entrepreneurs often claim that being able get back up after a fall is the most important skill a business leader can possess. This is among the most frequently regurgitated pieces of advice for new business leaders in particular, and rightfully so. Mistakes are inevitable in a business’s early stages. You hear about it all the time: Hard working and responsible business leaders making mistakes that, to an outsider, seem like common sense. One logical explanation is the tremendous stress that comes with starting a business. New business leaders often have daily schedules that are so hectic that they lose track of the rules they swore they would follow throughout their careers.
But while early adversity might be impossible to avoid, it doesn’t have to endanger your business’s survival. Companies like United Capital Source exist so new business leaders can recover from their mistakes and avoid unnecessary residual damage. Here are three financial mistakes that are common in new businesses:
1. Not Setting Aside Emergency Funds
Business leaders are only human. Think about how many surveys you’ve read that asked people about their savings, or whether they had the means to cover a significant, completely unforeseen expense. The results typically conclude that a shocking amount of people have very little money saved up and would not be able to cover that expense with their own funds. When asked why they don’t have more money saved up, respondents might say something like “Well, when am I ever going to need it?” New business leaders tend to have a similar outlook. They can’t envision a scenario in which they will suddenly need a significant amount of extra cash.
It might be possible to recover on your own, but only after taking drastic, potentially hazardous measures like laying off staff or ceasing all marketing efforts. Or, you could contact a business financing institution capable of offering terms for this exact situation. Certain programs, like a revenue based business loan, let you gradually pay off more debt as your finances recover. Instead of taking drastic measures to keep the business alive, you just have to do what’s necessary to pay off the debt.
2. Buying Too Much Inventory
Some industries are naturally prone to dips in revenue due to a variety of circumstances. One example is changing demand, which is one of the most daunting obstacles for retail businesses. This makes it very difficult to order the right amounts of the right products. Established retail businesses are at least able to review several years’ worth of data before making such decisions. Newer businesses, on the other hand, do not have this valuable resource. They cannot accurately predict when demand will surge and slow down, as well as how long each period will last.
This often results in unused inventory sitting on your shelves and putting precious working capital to waste. Retailers and wholesalers often end up selling the inventory at a loss because they are so desperate for cash. When this tactic is unable to fill the cash flow gap on its own, a business line of credit is typically the most sensible and cost effective solution. You don’t need to borrow a substantial amount, and it’s not like this will never happen again anytime soon.
3. Not Checking The Right Numbers
Staying on top of your business’s finances has two main components: Knowing which numbers deserve the most attention and knowing how often to check them. New business leaders tend to focus on total sales, expenses, website traffic, number of customers, and other figures that seem like the most important for understanding cash flow. What they don’t realize is that the value of different figures depends on the nature of the business. So, while some businesses may only need to look at the aforementioned examples, others might have to focus more on customer retention, or the amount of revenue being generated by different employees. Different numbers also need to be reviewed at different intervals. Certain performance indicators, for instance, may have to be recorded every day to be analyzed in weekly meetings.
This natural habit of new business leaders is one of the central reasons companies like United Capital Source are working to make small business loans more accessible for younger businesses. A business that is considering taking on substantial debt cannot afford to lose track of financial data. You have to look deep into your company’s financial health: Are you as profitable as you thought? Will your desired investment raise the numbers that have fallen? The connection between data and growth should be understood as early into your career as possible. Small business loans can introduce this connection to a business leader who otherwise would have made the same mistake as his countless peers.