No business owner sets out to hurt their business. Most have big dreams of making significant profit, being successful, and setting themselves and their families up for life. However, that’s not the reality for everyone. These are just some of the many common ways that business owners hurt their bottom line:

Underpricing Products or Services

You can always visit websites like https://www.mycanadapayday.com/ to tide you over until payday, when you don’t quite have enough money due to an unexpected bill. However, if your business isn’t earning enough to pay you a livable wage, it may be due to underpricing products or services.

While setting low prices is attractive to customers, it’s not always sustainable. This practice erodes your profit margins and devalues your offerings. You might have plenty of customers, but numbers don’t equate to profit when they aren’t paying enough to cover your costs. When determining pricing for products and services, always research market pricing, factor in your overhead costs, and adjust your prices to allow for inflation and demand.

Poor Money Management

Being knowledgeable about your products and services and having excellent customer service skills is not enough to run a financially successful business. You also need strong money management skills, or you run into trouble.

It’s surprisingly common for business owners to struggle with tracking their revenue. When they do, they often spend more than they earn, resulting in overdrafts, missed payments, and no way to invest in their business’s growth.

It’s in every business owner’s best interest to use cash flow forecasting tools and maintain a financial cushion of at least three to six months. Requesting the assistance of a financial expert may also be a good idea if you need to improve your money management skills.

Mixing Business and Personal Finances

Many small business owners start out using their personal finances for their business because their operating funds and profits aren’t yet enough to sustain them. Some people also start their businesses as a hobby and never intend for it to grow into a self-sustainable venture.

That means it’s pretty common for them to face the complex issue of having combined business and personal finances. Using a single account for both business and personal expenses is confusing from a bookkeeping perspective and increases your tax risk.

In many situations, it also reduces your credibility, especially when you’re trying to secure outside funding. As soon as you start your business venture, open a dedicated business bank account for it. You can also help to keep your transactions separate by using accounting software.

Not Reviewing Financial Reports

If you seem to have plenty of money in your business bank account and can afford to pay yourself and your employees and replenish stock, you may not see the value in wasting time reading financial reports. You’re clearly doing something right, and you don’t need to pore over cash flow statements, income statements, and balance sheets.

However, hidden within those financial reports can be warning signs. You may notice rising debt levels or shrinking margins, both of which can be alarm bells that you need to act on. To avoid missing financial red flags, set aside time each month to review your reports. Most accounting software provides quick insights for time-poor business owners.

Being Disorganized with Invoices and Bills

In a business that relies on people to pay their bills so you can pay yours, there’s no room for disorganization. If you don’t send invoices out promptly and chase up payments, you may soon find yourself with not enough cash flow to pay your own bills.

To ensure your customers pay you on time, send invoices promptly or automatically with clear payment deadlines. If they don’t pay you on time, follow up. Being this organized means you can improve your chances of being paid earlier and free up funds to pay your own bills on time.

Overspending On Non-Essentials

Reputation and image can feel like everything in business. You want to do and look better than your competition to win over your customers. For some business owners, that means making unnecessary investments in furniture, building upgrades, and new trends.

While there’s nothing wrong with wanting to have nice things in your business, it shouldn’t come at the expense of essential purchases. Always prioritize extra funds for business growth and emergencies, and plan well for those non-essential expenses. You may also see value in creating a budget based on your business’s ROI and in performing regular audits to identify waste.

Not Having a Tax Strategy

Tax is one of the most significant expenses of most businesses. The type of business you operate determines the tax you pay, such as income tax, self-employment tax, employment taxes, and excise tax. All too many business owners wait until tax season to think about their deductions and obligations, which can lead to missed savings and penalties for late or incorrect filings.

Knowing you’ll need to part with a large portion of your earnings to cover your tax obligations, it’s crucial to have a tax strategy. Start working with an accountant and meet with them every quarter to plan your taxes and optimize your deductions. Doing so may mean you pay less than anticipated.

Not Budgeting for Growth or Emergencies

The business you have today isn’t necessarily the one you’ll have in the future. You might experience a downturn that has a severe financial impact for a period of time. You might also experience a sharp upturn in sales, prompting you to expand.

Both of these situations require additional funds. An emergency fund will see you through your tough period, while a growth fund will allow you to expand in a sustainable and cost-effective way. To start budgeting for growth and emergencies, allocate a percentage of revenue to savings and reinvestment. It may be more helpful than you think.

Most business owners don’t intentionally hurt their business, but it can be a consequence of being uninformed and lacking business knowledge. If you haven’t taken these important steps above, now is the right time to strengthen your financial foundation and secure your business’s future.

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