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How to Leverage Financial Mistakes to Build Your Small Business

It doesn’t matter if your startup efforts are home-based in the basement or if you’ve been in business for years, money management can be a concern for all business owners. Dealing with cash flow, expenses, and billing can be a challenge. In some cases, certain financial mistakes can be enough to force a company to close its doors.

Maybe you’ve identified financial mistakes that have affected your company. Or, there is a possibility that mistakes have slipped by undetected. Either way, it is essential that you have a good accounting system to help you stay on track. Just because financial missteps happen, doesn’t mean that it will be the closing chapter for your business efforts. Instead, these mistakes can often be used to identify weak points in your system, helping you strengthen your business strategy for the future.

Transparency is Key for Success

The most important thing that you need to do is to maintain transparency with your reporting and accounting practices. If a mistake happens, it might be tempting to “brush it under the rug” because you are embarrassed that you didn’t get it right. But we are all human, which means that mistakes happen. Instead of spending your time focusing on the problem, look at the overall picture and identify areas of improvement.

Transparency is the best thing you can do to keep your company moving forward. When you are consistent with financial tracking and reporting, then you can always get a good feel for the current positioning of your company. These details can be used to influence your business decisions, helping to propel your company forward in the future.

So, every business owner needs to look at the foundation of wise financial tracking: do you have a good accounting software and system to maintain transparency with every transaction that moves through your accounts? Creating this system is essential so you can leverage your mistakes for your advantage.

Turning Financial Mistakes into Advantages

How do you put this principle into action? It can be difficult to see where you can make changes after a mistake so that the situation is a positive support for your company. Here are a few examples to help you create the mindset of learning from your mistakes:

  • Cash Flow Complications: When the overhead costs and bills come due, you need to be sure that there is enough money in the bank to cover these expenses. The truth is that most business owners experience challenges with operating capital. Regardless of the size of your business, cash flow is something that needs to be addressed and prioritized. All it takes is one big client who is late with a payment to result in a situation where you need to get creative to come up with cash for payroll or an upcoming tax bill. If you encounter cash flow issues, then it means you aren’t being careful enough in your project estimates. Rework your business plan so that you are more conservative with the monthly estimates. Also, make sure you always have at least 3 months of operating expenses in an emergency savings account.
  • Lack of Diversification: Do you have all your eggs in one basket? Without client diversification, you could be facing issues if the industry shifts. Don’t allow your cash flow to be dependent on a single client. This mistake could leave you in a pinch, but it is also a good motivation to change your processes to ensure it doesn’t happen again in the future. Going forward, be deliberate about reaching out to new, potential clients before the other contracts end. You need to be sure that you have enough in the pipeline to stay busy, even when things change with your current workload.
  • Skipping Project Milestones: When you have a lot of cash tied into one client or customer, you might make the mistake of waiting for a lump sum payment at the end of the project. Unfortunately, payment delays and schedule slippage could result in late payments, which will have a domino effect on other aspects of your business. Learn from your mistake: Instead of aiming for one big payment at the end of the project, set up projects with milestones and incremental invoicing to ensure that the cash flow is still coming through.
  • Business Growth Happens Too Quickly: It doesn’t sound like a bad thing to have your business growing so quickly that you can’t keep up. But, if important details are overlooked, then it could show your company in poor light in the industry. There is a fine balance to ensure that you are keeping up with the growth without leveraging yourself too quickly. For example, not only do you need to ensure you have the inventory to keep up with an increase in product demand, but you also need to be careful to avoid leveraging up the overhead expenses if your cash flow can’t handle it yet. Always be conservative in your forecasts and be careful to manage expansion according to the timeline that your business can carry.
  • Not Following Through on Outstanding Invoices: Consistency with follow-through is essential when it is time to collect payments from your customers. If you aren’t diligent with touching base about the outstanding payments, then it’s likely you won’t receive timely payments. Avoid these financial mistakes by committing to a good accounting system going forward. Organization, consistency, and the right software program can help you identify the outstanding payments so you can be sure that nothing slips through the cracks.
  • Competing on Price: If sales are slow, then it might be tempting to lower your prices so you can bring in more customers. Unfortunately, many business owners find that it’s a race to the bottom if you are only competing on price. Slashing the price of your products or services is only a temporary fix to bring in immediate cash flow. But this decision harms your profit margins, which means you will have less cash to work with for business growth in the future. If you’ve made this mistake, then it is time to redefine your marketing and branding strategy. It is essential you differentiate in the industry based on value for the customers. People will be willing to pay more money if they can see the benefits that will be gained from your product or service.
  • Data Entry Inaccuracies: There is always the risk of mistakes happening on the project. Whether an employee entered a few inaccuracies on the transactions in the accounting software, or someone overlooked a transaction altogether, it can have an impact on the accuracy of your reports. When inaccuracies happen, it means you are making decisions using wrong information. As a result, it could harm your cash flow, potentially resulting in late fees and legal ramifications if payments are missed. This problem can be solved by creating a system of checks and balances. In the future, you can rest assured knowing that nothing is overlooked when you are consistent with monthly reconciliations.

How to Handle the Situation When Mistakes Happen

What is your automatic response when a mistake is discovered in your business? Some people get upset; while other people want to ignore the problem. Before another mistake happens in the future, it is smart to evaluate how you will handle the situation going forward.

Failing fast is key when mistakes happen. Don’t let yourself get so caught up in the moment that you have a hard time moving forward. If money was lost, then view the situation as “tuition” for the education that you learned. Allow yourself to learn from the mistake so you can implement changes that will move your company forward in the right direction. A few small changes can be put into operation, making it possible to avoid running into the same mistake again in the future.

Tapping into Professional Services

The most common reason why financial mistakes happen is that business owners fail to utilize professional services that are available. Even though it might seem smart to save a little cash with a DIY approach, you could be facing a loss of thousands of dollars in the future with a big mistake. It’s worth the expense to bring in an industry professional so you can avoid some of the most common errors in the industry.

One great example is in the accounting industry. As a small business owner, you might try a do-it-yourself approach for tax preparation and filing. But you need to consider the hours and hours that will be required so you can figure out the tax forms and understand the best way to leverage your deductions. Plus, it is likely you could be missing out on thousands of dollars in tax write-offs because you didn’t understand the law. If a mistake is made, then you could be facing fines and fees from the IRS.

Instead, spending a little money for ongoing accounting services can be invaluable to help you avoid the common mistakes made by small business owners. If you are looking for financial support for your company, then Easier Accounting. Is here to assist. Call us at (888) 620-0770.

A Step-By-Step Guide to Cut Your Small Business Debt

Most small businesses and entrepreneurs have business debt due to the costs of managing the day-to-day activities of the company. If you are uncomfortable with the amount of debt that you are carrying for your company, then you need to talk to an experienced accountant to put together a debt pay-off plan.

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In most situations, the debt wasn’t accumulated overnight. So, you shouldn’t expect to pay it off immediately. But, a financial professional will be able to make recommendations about the strategies that can be used to maximize your cash flow and improve your overall financial picture. Here at Easier Accounting, we can help with the financial strategy for your small business.

Our goal today is to provide an overview of some of the strategies that can be used to pay off your debt. Customize these ideas to create the fastest way to financial freedom for your company.

Get Clear on Your Financial Picture

It might be tempting to look the other way and only focus on minimum payments. But, burying your head in the sand won’t solve your debt problems. To get started, you need to consider the amount of debt that you are carrying and the cash and assets that are available to use.

Schedule an appointment with your bookkeeper and/or your accountant to take a look at the overall picture. Make a list of outstanding balances that need to be paid, ongoing expenses for business operations, as well as a budget you can maintain going forward. This budget needs to be designed with two goals in mind: avoiding additional debt and paying off the current balances. You need to be sure that you are earning more than you are spending if you want to pay off the debt.

During this meeting, your small business accountant might make suggestions about common budgeting and debt-reduction strategies. For example, it can be beneficial to sort through expenses to identify essential costs and ways to reduce overhead spending. At the same time, you need to look at strategies that might be available to increase monthly revenue.

Hands-On Debt Management

Now that you have a clear picture of your financial status, you might consider opportunities to negotiate better terms for your balances. Go through your accounts one by one to ensure that you understand the terms of the loan and the payment options that are available. Then, you can figure out the credit lines that need to be paid first to optimize your long-term results.

You can read the fine print in the loan terms. Or, better yet, call the company to learn about your options. This conversation can sometimes lead to a negotiation regarding the payment options. Some vendors will offer a discount or early-bird price if the money is sent ahead of schedule.

Consider using the snowball strategy to pay off all of the balances in the shortest period. If you can negotiate a quick payoff for a smaller balance, then you can roll the money that you would normally be spending for that payment into the next loan.

If possible, you should re-negotiate the terms for every line of credit. Most lenders know that it will be a huge loss if they send the account to collections. So, they are interested in finding a win-win solution for both parties. You could potentially negotiate a different minimum payment or reduce the interest costs on the money that you owe. Talk to them about late fees and restructuring the payments so that you can create an environment that will make it possible for you to pay the balance.

Set Up a System

After the negotiations are done, do everything in your power to make sure that you keep up with the payments going forward. The late fees and interest costs can make debt unmanageable. But, you can avoid these problems by making timely payments every month.

You need to have a system in place to ensure that the cash flow is available for debt payments. Make sure that you are paying your debt obligations before you consider investing money in other business development opportunities.

This system could be structured to allocate a certain percentage of your revenue to debt payments. Or, you might consider the option to set a specific dollar amount that needs to be paid each month, regardless of the revenue that you receive.

Should You Consolidate Your Debt?

Some people automatically assume that debt consolidation is the best answer to get out of the financial hole. While consolidation can be a good solution for some people, it isn’t always the best method. Make sure that you understand the terms of the consolidation before you sign on the bottom line.

What is debt consolidation? It is the method of acquiring one large loan to move all of the smaller balances into a single account. Consolidation could simplify your financial picture, and sometimes it can reduce the amount of interest that you are paying each month.

If you decide to move forward with debt consolidation, be warned that the lender might require some collateral. For example, you might need to offer a personal guarantee to back up the funds that are offered.

Be cautious to manage your spending after the consolidation loan is in place. Some business owners fall into the trap of paying off their credit lines with the consolidation loan, then running up the balances again because of poor financial management strategies.

Maximizing Your Business Revenue

Managing your debt payments is the first step to take control of the financial health of your company. In addition to looking at the amount of money that you are spending on debt payments, you also need to evaluate the money that you are receiving. Your repayment plan won’t work if you don’t have a solid cash flow to make the payments that are needed.

Aggressively building your income will be a fast way to pay down the balances. Generating more cash will help you feel motivated to reduce your small business loans and build your company for the future.

What are the best strategies to bring in more money? Here are a few solutions that might work for your company:

  • Increase Prices: Don’t bump your prices without evaluating how the increase will affect overall sales. A small price increase won’t likely have a major impact on the number of orders that you receive. But, if you sell a large volume of products, then this small increase could add up over time. For a quick boost in sales, you might make an announcement to current customers that the prices are going up. Many people will purchase products before the change happens.
  • Assess Inventory: How many items are sitting in the back of your inventory room, lost in the stacks of boxes? Your inventory represents money that is available for your company. Since you already have these products on hand, you don’t need to spend a lot out of pocket when the products are sold. So, you might consider offering a special sale to move those items. In the future, look for ways that you can optimize your inventory to avoid spending a lot of money on products that will sit in storage for a while.
  • Leverage Upsells: When someone is ready to make a purchase, it is easy to encourage them to add another small item to their shopping cart. Look for a way that you can offer bundles or incentives to encourage people to spend more money when they are making a purchase.
  • Reach Out to Current Customers: People who have already purchased from your company have shown interest in the products and services that you offer. Instead of spending your marketing budget to acquire new customers, consider the benefits of reaching to current customers. You will likely experience a bigger ROI from these marketing efforts.
  • Diversify Your Services: Is there anything else that you can add to your line of services? Diversification might allow you to break into new markets or offer your skills in a different way.
  • Ask for Referrals: Contact your best clients to see if they are interested in referring their contacts to buy from your company. You can sweeten the deal by offering a referral bonus or incentive. If people are happy with the service they have received from your company, then they will be more than willing to refer their business contacts, friends and family.

Schedule an Appointment with Your Accounting Team

These ideas should get the creative juices flowing to help you reduce your debt load. But, you don’t need to carry this responsibility on your own! Don’t be afraid to talk to an accounting expert to get customized advice to match your business. Ongoing suggestions from your accountant can be a valuable way to turn your business around and increase your future success.

If you don’t have an accounting team to help, then you need to contact us at Easier Accounting. We specialize in small business accounting, and we know the best strategies that can be used to maximize the financial outlook for your company. Call us for more information about the services that are offered: (888) 620-0770

Financial Strategy: The Top Reasons Why Businesses Sink Or Swim

If a business does not have the right financial strategy in place, its performance is seriously compromised. Financial strategy is the foundation on which a business is built; if this foundation has cracks, it can be the difference between a business thriving or failing.

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