Managing finances is important for an entrepreneur and if your money skills aren’t strong, you might encounter problems in the later phases. However, managing money doesn’t come naturally to everyone and most entrepreneurs end up making some crucial mistakes.
Here are common financial mistakes made by entrepreneurs:
Faulty business plan
The biggest mistake you can make after starting a business is not having a business plan. It is essential for a business to have a plan to be sure about what the goals and missions are. If the goals aren’t set properly, the whole situation can result in a chaos.
Business plans also consist of a financial plan in detail without proper breakdown of fixed and variable costs. It also states how much money is required in each quarter by the business. If the financial section isn’t made properly in the business plan, it can lead to huge crises.
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Poor risk management
What distinguishes entrepreneurs from managers is the risk factor. Entrepreneurs have to undertake risks which do not have to be considered by a manager. Not managing risks properly can lead to the destruction of the company.
So, an entrepreneur needs to make sure they foresee the risks that one is likely to encounter in the future and take necessary steps to avoid the risks. Insure all your machinery, land and key employees so that if there is a bad situation, there isn’t much damage. Also, a separate amount of money needs to be set aside for risk management.
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Investing in trends
In your entrepreneurial career, you will always be confused as to where to invest. However, the worst kind of investment an entrepreneur can make is by investing in trend. A trend is something which is popular currently but will die in the future and be replaced by something else. Developments in the future are sure to displace today’s developments. Thus, investing in more secure deals is a safer option than investing in futile trends.
For instance, Warren Buffet invests in roads, insurance and electricity.
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Not pumping back enough in to the business
If your business is currently making profits, it is all the more reason to pump money back into the business and expand it. Some entrepreneurs let the money lie idle or invest it in banks. This won’t help your grow your business and money will just lie there.
The money can be spent on useful things like improving customer service or marketing for the company or research for a new variant or product.
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