Business mistakes may sound easy to avoid, but unfortunately, they do happen. The best financial plan can crumble around a small business owner's ears, and sometimes the best way to get back on top is to look at those problems and find out where it all went wrong.
Ideally, the path to financial success won't have any issues, and if that is the case so far, it helps to look at the mistakes of others and apply those to a current business model. Many people have tried and failed, and each story is a new example of what not to do and how to ensure a brighter future for a company.
Learn from others' mistakes
Financial tips can quickly backfire if a proper strategy isn't in place and good decisions aren't made. Sometimes seemingly simple steps to business success don't work out quite like it was planned.
Every company has partners in some regard, but this common element has inherent risks, as well. Therefore, choose partners wisely, according to Inc. magazine. This is especially true if other ventures have worked out in this aspect. It can be easy to get a little cocky, so be careful when forming alliances during a start-up's early days. While some people may seem nice and sincere, partnerships can crash and burn easily. Trust someone implicitly, before entering any agreement together – certainly if financial services will be jointly managed.
In addition, nearly all businesses encounter problems along the way. Similar to many situations that occur in one's personal life, little issues can snowball into monstrosities. This is never advisable, and always deal with the problem when it first arises, according to Inc. magazine.
If finances fluctuate, don't wait to adjust sales projections and monthly expenditures. Gambling on an increase in revenue later to account for a rise in prices now might not work out, and before long a company to find itself in debt. Sometimes, legal avenues are available before a service is complete, and waiting until after to address a monetary concern might leave the burden squarely on the little guy's shoulders, Inc. magazine noted.
Always prepare for the worst case scenario, so if it does come, the business will be entirely ready to handle it.
One bottom line shouldn't be the sole focus
Matthew Garrett recently contributed to Forbes magazine about his experiences with business finance, and he provided a key piece of advice: three bottom lines are better than one.
His crucial financial tips center around learning the basics, and figuring out how to walk before running. Simplicity is every chief financial officer's friend, and over-complicated day-to-day finances can have a negative effect on the business. While Garrett added that revenue is always the focus, which is fair – but one specific profit line might provide false information for the overall health of the company.
Therefore, he stressed three bottom lines over one. What that means is focus on net income from operations, net equity and net cash from operations. This way, a small business owner can get a better overview of what the company is doing, rather than focusing on one trait while possibly missing other important indicators.
Looking at only one has the potential to mask problems, Garrett noted. An unprofitable segment may be visible by checking over the business' financial plan on a large scope, but narrow-minded accountants can miss important data. It is easier to spot how well a product or service is doing by comparing valuable financial stats against each other, and looking at the total well-being of a company.