Whether your small business is thriving or struggling, it’s an ideal approach to prevent the common pitfalls from the very beginning. As the name suggests, small businesses have ‘smaller’ cushions to fall back on with finances, inventory, and other significant factors – so it’s important to get the right course of action in place with very careful and strategic business maneuvers when making tough decisions.
Learn the most common mistakes small businesses tend to make that can result in a fateful drawback or downfall.
Mistake 1: Uncontrolled Growth that leads to Financial and Management Issues
The team at Allied Financial enjoys working closely with small and medium sized businesses who rave about their ideas and passions with inspiring enthusiasm. One main element they discuss is how quickly revenue is progressing and growing.
The idea of growing your business quickly and increasing revenue substantially sounds like the perfect scenario… right? Fast growth may sound ideal, but the idea may not be as great as it seems. If this quick advance is not carefully executed, business disasters could strike. Consider controlling your growth with these carefully implemented strategies:
- The main thing to focus on is the bottom line growth: an increased top line growth does not take care of everything – look at all of the financial data rather than just the revenue line.
- Sell product or service to companies with financial strength/stability: these companies are reliable and can pay their bills in a timely fashion.
- Be prepared to offer longer terms to larger companies to obtain the sale: keep cash flow gaps in mind, as companies can cripple without the needed cash in time.
- Sell to credit worthy companies: if the outstanding invoices are not collectable, the sale means nothing. Regardless is this is a new or old contact, consider their credit strength before making the sale.
Mistake 2: Keeping Too Much Inventory or Materials on Hand
Being a step or two ahead while thinking about the company’s future is always a great tactic – this includes having the right balance of inventory. You can greatly miss out on sales opportunities if you don’t have enough inventory, but you can spend unnecessary cash with too much.
Unfortunately, it’s extremely common for the optimistic business owner to carry too much inventory with the positive thought of selling all items. At times, this falls short, with the unsold inventory being over projections and an unnecessary additional expense.
There are two components that can help with determining the right amount of stock: tracking inventory and simple math. To do this, calculate your inventory turnover rate and turnover days, then use industry averages to estimate the right inventory level. Doing these steps can go a long way with knowing exactly how much stock to have on hand.
Mistake 3: Over Simplifying (or Over Estimating) your Company’s Financial Health
Small businesses at times dictate how well they are doing based on how much money is in their account. However, the numbers in the bank do not have all the answers. In other words, how much money the company has does not determine how well it’s doing overall. Business owners see the large sum of money at the end of the month and feel confident they can take out a lot to pay themselves after making payroll. Sounds nice, but there are some problems with this notion:
• Emergency funds: every company needs to have money in their back pocket in case there is a down month or an unexpected expense.
• Mismanagement of finances: companies need to pay the bills from important -vendors.
• Missed sale opportunities: with no money in the bank, there is a lack of working capital to purchase products or increase payroll.
Here is a good rule of thumb: build a solid foundation, retain earnings, and have a good accountant to keep track of finances. With these things in mind, your business will flourish.
Learn More About Allied Financial’s Accounts Receivable Financing
To help your small or medium sized business prosper, contact Allied Financial Corporation. We can assist your business in getting the financing it needs as soon as 5-10 business days. Get started by submitting a contact form or calling 770-730-0101.