When a business is profitable, it can
provide a high standard of living for its owners and provide steady employment
for its workers. If a business is not profitable or at least bringing in
consistent revenue, it can be difficult for that organization to stay in
existence. Therefore, it is important for a company to manage its money
properly. What are some common financial traps that a business should do its
best to avoid?
1) Expanding Too Rapidly
Companies who see success in their early
days may think that the market will support additional locations. However, this
means additional operating expenses, additional marketing expenses and the risk
of eroding the brand through the dilution of company culture. Therefore, a
business needs to make sure that there is enough money to be made to justify
expansion before it occurs.
2)
Not Charging Enough for Its Goods or Services
Startup business owners may understand
how to make a product or deliver a service. However, they may not know how much
to charge for that good or service. While giving away products for free or at a
discount is a great way to drum up business at first, it may not allow much
room for future profits needed to grow the company.
3)
Taking on Too Many Outside Investors
Selling equity in a company is a great
way to raise money quickly. The problem is that there is only so much equity to
go around before the original owner or owners lose control of their business.
Instead of following your own dreams and vision, you are beholden to those who
often value profits over your company culture.
4)
Hiring Employees Too Early in the Growth Process
One of the great things about owning your
own business is that you can eventually hire other people to perform the tasks
that you either don't want to do or aren't as good at doing. Unfortunately, it
costs money to hire people to work for your company. If there isn't enough
revenue coming in to justify hiring more workers, it could jeopardize the
company's finances. Therefore, it is critical to examine the total cost of
hiring a worker, which may include benefits, sick time and bonuses.
5)
Staying in America When Production Costs May be Lower Overseas
The ability to claim that a product is
Made in America may be a source of pride to a business owner. However, the cost
of making a product is generally less expensive overseas. In some cases, the
difference between making a product in America and making it overseas can be
the difference between a business surviving or going out of business.
Although a business can project the
potential risks and benefits of a financial decision, it is often hard to
determine whether something was a success or failure until it actually happens.
Fortunately, there are certain money traps that a company can avoid by planning
ahead and determining what its needs will be both now and in the future. While
not every decision works like it was anticipated to, a good business owner will
give him or herself the flexibility to ensure that one failure doesn't lead to
more.
-Jessica Kane
Jessica Kane is a
professional blogger who focuses on personal finance and other money matters.
She currently writes for Checkworks.com, a leading supplier of personal and business checks.
