Inc. Magazine interviewed Brian Hamilton, who is the CEO and co-founder of Sageworks, an Inc. 500 honoree. His company deals with financial information, and he had this advice for all entrepreneurs about what financial mistakes to avoid in business.
Mistake #1: Counting on Money That’s Not in Hand
According to Hamilton, hiring people on the basis of contracts or promised revenue is a mistake that many business owners make. But, as he points out in the article, until we actually have the money in the bank, we shouldn’t make any financial moves based on it. This may mean holding off on hiring people for longer than we want to when there is a new contract with orders to fill, but it will prevent trouble if the contract—or money—never comes through.
Mistake #2: Borrowing Money That You Don’t Need
Hamilton points out that a small business owner’s goals and a banker’s goals are completely different. A business owner’s goal is to reduce expenses while earning more revenue, while a banker wants to collect as much interest as he can, and that means making larger loans. The key, according to Hamilton, is to only borrow what you need, not what you’re offered.
Mistake #3: Not Being Diligent with Payroll Taxes
Many small business owners aren’t great about setting up a separate account for the payroll taxes that they collect for their employees, and that can get them in trouble when it comes time to pay them because, if they haven’t kept up with the amounts, they may have to dip into cash that they need for something else. Instead of optimistically expecting the cash to be there when you need it, set up a separate account and put it away as you collect it..
Mistake #4: Concentrating on Price, Not Product or Service
Many business owners concentrate on price as a way to attract new customers, but Hamilton thinks that’s the wrong approach. Instead of trying to compete with low end businesses, he says that small businesses should price their products and services at the high end of the spectrum, and then concentrate on giving the best service or superior products.
Mistake #5: Offering Credit to Customers
One of the biggest reasons that small businesses fail is because they have a difficult time collecting their accounts receivables. But according to Hamilton, only about 25 percent of business owners should ever consider offering credit to their customers. Instead, concentrate on what you do best, and don’t feel pressured to act like a bank to your customers.
Mistake #6: Rely on Only One Account
Many small businesses fall into the trap of relying on one major source of business at the exclusion of others. But that can be dangerous because if that account moves on, goes out of business, or any other number of things, the business will be at risk. Expand your businesses and make sure that there are plenty of customers to pull from.
Mistake #7: Hiring Employees Who Don’t Produce Revenue
There are some employees that add to a business’ bottom line, such as customer service reps, sales people and those who build products. But the rest of the employees, such as administrative workers, don’t actually add to the bottom line. Hamilton suggests limiting the amount of employees who don’t bring in money in order to increase the amount of cash you have at your disposal to run the business.