How much do mistakes cost you? Well, if you’re talking about adding a quarter cup too much sugar to the apple pie filling, the mistake might cost you your pie. If you’re a small business owner and make certain mistakes, they could cost you your business.
Everybody makes mistakes, but successful business owners take care to avoid the actions that could result in financial loss – or worse, financial disaster. Here are three mistakes to avoid.
- Relying on your intuition
People go broke every day at horse racing tracks because they believe that their “gut feelings” about which horses will win are good guidance. They’re only guidance if you want to go broke. In business, it’s always best to work with hard facts rather than hunches. Numbers don’t lie, but a person’s feelings and opinions about things can fluctuate greatly and provide no solid foundation from which decisions can be made.
Takeaway: Be meticulous about your bookkeeping system. Keep it up to date, and always double- and triple-check your numbers.
- Running without a budget
Failing to develop (and follow) a budget is akin to a man getting into a foot race without knowing if he even has the capacity to run the distance. Likely, he doesn’t, and his lack of preparation will result in a disappointing experience. Business owners need to plan ahead for “reasonable” expenses and ensure, through budgeting strategies, that they’ll have the money throughout a given period of time to manage costs.
Takeaway: Work your budget, and watch the fluctuations to see if your projections need some adjustment as you go along. This is called forecasting, and it’s a critical element of the budgeting process.
- Remaining stuck in one mindset
It’s true that most business owners put quite a bit of thought into creating their enterprises. They use data to predict how, in an “ideal world,” their businesses should function. The problem is, the business world is rarely “ideal,” and often rapid, educated change is necessary to keep up with the changes from the outside that affect the company. Forecasts sometimes fail. Projections are often affected by factors outside our control. Only by being flexible can a business owner chart and re-chart his course in a way that brings the most personal and financial success.
Takeaway: Pay close attention to your financials in order to determine when changes need to be made. Don’t “fight the system” by expecting everything to always go your way.
The reason it’s so important to understand common business mistakes is because making the wrong mistake at the wrong time can lead to a host of problems you really don’t need to be addressing. The bottom line is always this: Go ahead and put all your eggs (i.e., your business) in one basket, but watch that basket very closely.
Cotton Mather is a professional accounting firm serving small businesses in the greater Pittsburgh area. To learn how our services can benefit your company and help you avoid making costly financial mistakes, call us at (412) 931-1617.