Being your own boss can be exhilarating, until the moment you realize it can all go horribly wrong at a moment’s notice. Maybe this is because you haven’t managed your money, or maybe it is because you haven’t protected your family in the case that something happens to you. Either way, money mistakes can come back to cause significant sorrow for business owners – especially if they are ignored.
Why does this happen? For many business owners, they are too caught up with just trying to keep the lights on to even think about long-term planning. For others, it is a false sense that things will always stay the same. The reality is the downturns and accidents happen and if you haven’t prepared yourself and your family then you are doing both a disservice.
With that in mind, here are four money mistakes every business owner makes.
Mistake 1: No Insurance
While this might seem like an added expense, the reality is that when managed correctly, insurance is an excellent way to manage risks. The key is to manage the cost of your premiums with the coverage you are getting. Doing so help you maximize your coverage levels while minimizing how susceptible you and your business are risks.
Policies you should consider for your business include general liability insurance and ‘key man’ insurance. The latter will cover the company and maybe your family in case of anything were to happen to you. This is important as most small businesses rely so onheavily on the owner that it would be almost impossible to continue operating if something happened to them.
Another way this can help is that it will provide added security for your family as the insurance payout can help to cover some of the uncertainties that will pop up if you are no longer in the picture. Not to be morose but this is something that all small business owners should think of, but few rarely do.
Mistake 2: No Budget
Let’s face it, money can go out the door much faster than it comes in the door. Even when times are good it can feel like you are bleeding cash and for this reason, you need to set up a budget to help manage your business.
It doesn’t matter if your revenue and expenses are ‘predictable’ or not, the key is to start tracking your revenue sources and your expenses and then see how the two are related. Not only will this help you to better manage your costs, it will help you to identify the relationship between your revenues and the expenses required to deliver to your customers.
Another benefit of having a budget in place is that it can help to improve how you do your pricing. Gone are the days of picking a number out of thin air as you replace your pricing with data.
Mistake 3: Not Preparing for Emergencies
Just as with your personal finances, you need to prepare your business for emergencies as well. This could be a sharp change in the economy or in your local market, a personal injury claim, or even a motorcycle accident while you are enjoying some free time. In the case of the latter, you might want to reach out to a lawyer who specializes in such claims, such as https://westcoasttriallawyers.com/practices/motorcycle-accidents/.
But even if a lawyer helps you, the question should be whether you have helped your business? The answer to this starts by being prepared for emergencies. As mentioned, having insurance can help but it is not the only answer.
What can you do? It starts by making sure your business is on the firm financial footing and then setting aside some of your profits for a rainy day. Beyond this, you also want to establish a relationship with your bank as the reality is that it is very hard to get credit when you need it, so you are better off getting it in place when times are good.
Mistake 4: Failing to Reinvest
There was a time when the steel industry in the U.S. ruled the world. However, boards of these major corporations failed to reinvest at a time when their foreign competitors had no choice but to build new mills. Fast forward 50 years and the domestic steel industry is a shadow of what it once was.
The lesson here is that you either reinvest in your business or you die. Sure, you might not be running a steel mill worth hundreds of millions of dollars, but this is something you should take to heart for your business.
This is not to say that you need to keep pouring money into your company without a return. Instead, invest in those priorities which will help your company grow. Doing so will help to make sure your business is on a strong footing for the future.