General Business and Finance Blog

Avoiding the top 7 business financing mistakes is a key component in business survival.

If you start committing these business financing mistakes too often, you will greatly reduce any chance you have for longer term business success.

The key is to understand the causes and significance of each so that you’re in a position to make better decisions.

>>> Business Financing Mistakes (1) – No Monthly Bookkeeping.

Regardless of the size of your business, inaccurate record keeping creates all sorts of issues relating to cash flow, planning, and business decision making.

While everything has a cost, bookkeeping services are dirt cheap compared to most other costs a business will incur.

And once a bookkeeping process gets established, the cost usually goes down or becomes more cost effective as there is no wasted effort in recording all the business activity.

By itself, this one mistake tends to lead to all the others in one way or another and should be avoided at all costs.

>>> Business Financing Mistakes (2) – No Projected Cash Flow.

No meaningful bookkeeping creates a lack of knowing where you’ve been. No projected cash flow creates a lack of knowing where you’re going.  

Without keeping score, businesses tend to stray further and further away from their targets and wait for a crisis that forces a change in monthly spending habits.

Even if you have a projected cash flow, it needs to be realistic.

A certain level of conservatism needs to be present, or it will become meaningless in very short order.

>>> Business Financing Mistakes (3) – Inadequate Working Capital

No amount of record keeping will help you if you don’t have enough working capital to properly operate the business.

That’s why its important to accurately create a cash flow forecast before you even start up, acquire, or expand a business.

Too often the working capital component is completely ignored with the primary focus going towards capital asset investments.

When this happens, the cash flow crunch is usually felt quickly as there is insufficient funds to properly manage through the normal sales cycle.

>>> Business Financing Mistakes (4) – Poor Payment Management.

Unless you have meaningful working capital, forecasting, and bookkeeping in place, you’re likely going to have cash management problems.

The result is the need to stretch out and defer payments that have come due.

This can be the very edge of the slippery slope.

I mean, if you don’t find out what’s causing the cash flow problem in the first place, stretching out payments may only help you dig a deeper hole.

The primary targets are government remittances, trade payables, and credit card payments.

>>> Business Financing Mistakes (5) – Poor Credit Management

There can be severe credit consequences to deferring payments for both short periods of time and indefinite periods of time.

First, late payments of credit cards are probably the most common ways in which both businesses and individuals destroy their credit.  

Second, NSF checks are also recorded through business credit reports and are another form of black mark.

Third, if you put off a payment too long, a creditor could file a judgement against you further damaging your credit.

Fourth, when you apply for future credit, being behind with government payments can result in an automatic turndown by many lenders.

It gets worse.

Each time you apply for credit, credit inquiries are listed on your credit report.  

This can cause two additional problems.  

First, multiple inquiries can reduce you overall credit rating or score.  

Second, lenders tend to be less willing to grant credit to a business that has a multitude of inquiries on its credit report.

If you do get into situations where you’re short cash for a finite period of time, make sure you proactively discuss the situation with your creditors and negotiate repayment arrangements that you can both live with and that won’t jeopardize your credit.

>>> Business Financing Mistakes (6) – No Recorded Profitability

For startups, the most important thing you can do from a financing point of view is get profitable as fast as possible.

Most lenders must see at least one year of profitable financial statements before they will consider lending funds based on the strength of the business.

Before short term profitability is demonstrated, business financing is based primary on personal credit and net worth.

For existing businesses, historical results need to show profitability to acquire additional capital.

The measurement of this ability to repay is based on the net income recorded for the business by a third party accredited accountant.

In many cases, businesses work with their accountants to reduce business tax as much as possible but also destroy or restrict their ability to borrow in the process when the business net income is insufficient to service any additional debt.

>>> Business Financing Mistakes (7) – No Financing Strategy

A proper financing strategy creates 1) the financing required to support the present and future cash flows of the business, 2) the debt repayment schedule that the cash flow can service, and 3) the contingency funding necessary to address unplanned or unique business needs.

This sounds good in principle, but does not tend to be well practiced.

Why?

Because financing is largely an unplanned and after the fact event.

It seems once everything else is figured out, then a business will try to locate financing.

There are many reasons for this including: entrepreneurs are more marketing oriented, people believe financing is easy to secure when they need it, the short term impact of putting off financial issues are not as immediate as other things, and so on.

Regardless of the reason, the lack of a workable financing strategy is indeed a mistake.

However, a meaningful financing strategy is not likely to exist if one or more of the other 6 mistakes are present.

This reinforces the point that all mistakes listed are intertwined and when more than one is made, the effect of the negative result can become compounded.

If you were to start committing any of the following 3 business financing mistakes too often, you would greatly reduce your chances of long-term business success. And to be a success in business you have to think long-term. Track record and reputation in business is earned over time.  A good business track-record is largely judged on financial success and financial success in business is assessed largely through the examination of business accounts. Good business accounts demonstrate to banks, financiers, colleagues etc., that you are a bankable business person and will lead them to put their faith and money into you and your business ventures.By not committing any of the following 3 business finance mistakes you will, at the very least, have good financial indicators and be able to respond to the businesses financial position in time. The key here is to understand both the causes and significance of each. Business Financing Mistake # 1 – No Monthly BookkeepingRegardless of the size of your business, inaccurate record keeping creates all sorts of issues relating to cash flow, planning, and business decision making. In a word, your business is doomed if you are not doing monthly bookkeeping.Bookkeeping services are dirt cheap compared to most other costs a business will incur. Bookkeeping should be done on a monthly basis along with Management Accounts so that your financial records are always up to date and you can view the financial status of the business (Profit and Loss, Balance Sheet etc.,)Once a bookkeeping process gets established, the cost and time involved usually goes down.  By itself, this one mistake tends to lead to all the others in one way or another and should be avoided at all costs.Business Financing Mistakes # 2 – No Projected Cash Flow & BudgetHaving no meaningful bookkeeping creates a lack of knowledge on where you are. And having no projected cash flow and budget creates a lack of knowledge about where you’re going.  Without keeping score, a business tends to stray further and further away from its targets and, invites a crisis that eventually forces the business to change it monthly spending and cash-management habits.A projected cash flow first and foremost needs to be realistic. You should project both a best-case and worst-case scenario based on projected sales and business expenditures. It’s a good idea to aim for the best-case scenario but know how the business would respond should the worst-case scenario transpire.Business Financing Mistakes # 3 – Inadequate Credit ControlThere’s nothing worse than making sales, doing the work, sending your customer an invoice and then not getting paid on time…or worse still not getting paid at all! It’s a well-established fact that the longer a debt isn’t collected the less chance it will be collected. Typical credit terms in most established business are 30 days. However, due to a culture amongst some customers of paying late and small business not operating strict credit control, a business can often not get paid on time and fast run out of cash. So how do you avoid this? Well, there are numerous steps you can take but the following 3 steps will help ensure you always get paid…and paid on time.1.Appoint someone in the business to be in charge of credit control. It’s vital that someone is responsible for sending out invoices and statements; reminding the customer that payment is due, handling queries on invoices etc.2.Reinforce your payment terms and conditions on your contracts, on your website, on your invoices etc. It’s important that customers are aware of your payment terms and the consequences of late payment (cessation of service, interest charges etc.,)3.Send your invoices on time and include a statement of the account with each invoice. If you don’t send your invoice out at the end of each month how can you expect to get paid before the end of the following month.In a world of tightening credit from banks, strict business finance practices are required even more. You can’t expect your bank to extend your overdraft or facilitate a term loan if you are guilty of any of the 3 above financing mistakes.There’s so much more to business finance and money management than I have covered in this article that I could write a whole book on it! But for the moment if you are starting out or taking over the running of a business and are experiencing working capital or cash-flow difficulties than I would first start investigating these 3 key areas and see that they are being managed diligently. If you do this, than many of your cash-flow difficulties will begin to disappear and your business finances will improve quickly (assuming your business proposition is sound in the first place and sales are strong). Find out more about business, personal finance and wealth creation strategies by signing up NOW at www.MillioniareMindsetSecrets.com.

It is always advisable to have a detailed understanding of what can go wrong with commercial loans and working capital financing. The five factors described can have negative and long-lasting financial results for small business loans and commercial real estate loans. Business owners should be prepared for these real possibilities.

Most commercial borrowers do not want to experience a worst case for commercial real estate loans and small business loans. There are several elements that we believe will almost always produce this serious but avoidable result when they are all present simultaneously. Understanding each of the issues should enable borrowers to avoid a potentially devastating working capital financing outcome.

Here are the issues which we believe will usually result in a worst case scenario for commercial loans if all five are present: (1) Dealing with an inexperienced commercial finance advisor; (2) Using a lender which historically has an unacceptable track record for successfully completing commercial loans; (3) Obtaining business financing that includes a recall option for the lender; (4) Inappropriate and non-competitive business loan terms; and (5) Short-term financing in which a borrower is not also offered the opportunity to lengthen to a longer-term period.

Our primary advice is to totally avoid circumstances where all five factors exist at the same time. A secondary recommendation is to also seek alternative financing for commercial loans when either of the first two elements are present. There are likely to be many working capital management scenarios where it will be impractical to avoid all of the issues described in the preceding paragraph.

Business owners should make every possible effort to obtain commercial financing in which the worst case situation is not present. Business owners will subject themselves to inappropriate business financing terms for a very long time if they do not take appropriate action before they finalize commercial loans. There are two points which should be emphasized.

First, small business loans are more complex than most borrowers realize. There are a number of additional serious commercial funding obstacles beyond those noted in this brief article. Because of this, it is important for commercial borrowers not to narrowly focus on the factors included in the worst case scenario discussed here and simply avoid these specific issues.

A comprehensive approach to working capital management should incorporate a balanced analysis of both the worst case aspects and other critical business finance terms. The importance of this overall perspective is why we emphasized the critical nature of avoiding both inexperienced brokers and lenders.

Second, the worst case scenario for business loans described above is totally avoidable. But to avoid an obstacle, it is critical that you have a working understanding of what you are avoiding, what it looks like and any special techniques required to evade it. For example, if you are driving a car, it is common sense that you will not intentionally drive your vehicle over sharp pointed objects that are likely to puncture your tires.

With commercial loans and commercial real estate loans, the combination of the five factors noted previously in this article will typically produce an impact for small business funding that is equivalent to much worse than simply puncturing a tire. Unfortunately, without proper advice and knowledge, most business owners will not be prepared to recognize the appropriate warning signs for avoiding business financing hazards.

In this article we focused on problems with small business financing that will almost always have long-lasting and immediate negative results for business owners. Commercial borrowers should not overlook the multitude of other serious problems with commercial loans beyond those described. As with the circumstances noted above, most of the other potential difficulties with business loans can also be avoided.

There are numerous reasons for wanting to work from home, most home based business entrepreneur bring up the ability to set their own time as a main factor in their decision to work at their home. All the same, numerous home based business entrepreneur that often fall into a trap that flies directly in the face of their expressed desire for time flexibility.

The strong development in home based business activity bears on and, according to the Small Business Administration’s Office of Advocacy, 52% percent of ALL small businesses are home-based.

Some home based business possessor have been recognized to become “workaholics” because their office is so accessible. Do not become a slave to your home-based business… Go out of your home office regularly to renew and revitalize yourself, meet your friends, got to gym and do some extra activities.

Close the doorway to your home office or otherwise take out yourself from your designated work area and go into your home area to live your personal life. If your home-based business demands communication with the use of the telephone and you’ll find it difficult to brush off a ringing phone in the office, merely turn the phone ringer off and turn the volume on the answering machine way down. If your business is World Wide Web based, just turn off your computer or at least get away in front of your monitor and keyboard.

As a work at home business owner, you certainly are not necessary to be online 24hours a day, 7 days a week just because your business is located in your home. Afterwards , your office or workspace is just an few meters in your home…its not your home itself!

Working and living nether the same roof has a host of advantages, but it can acquaint some challenges in addition to the workaholic syndrome cited above and stress factors.

Here are helpful tips to produce a less stressful home-based business environment:

Although your not going through the negatives basic to a corporate office working environment, the home-based business enrepreneur may occasionally go through stresses and frustrations that are unique to working at home.

Getting connected with other home-based and small business owners allows an opportunities to mingle with others who may be going through the same stress that you are experiencing. Sharing stressful and frustrating issues on somebody else in the same situation could relieve your stress and may bring you good advice from another viewpoint.

You quit your day job and are ready to delve into an easy work at home business. It is a piece of cake to work at home and not have to deal with corporate rules or office politics, right? While working from home does give you a newfound sense of freedom and relieves you of problems associated with working for someone else, it too can be tricky. There are some pitfalls of owning your own business and working at home.

1. Poor budgeting skills. Budgeting for a home based business is difficult because there is no guarantee for income. You can’t pay bills and spend money from your business account hoping that next week or next months will bring in better results. Another common problem with budgeting is spending too much or not enough money on advertising. You have to strike a balance to get word out about your business and get more sales without breaking the bank.

2. Expecting overnight success. Some people are under the misconception that the minute their business goes live on the Internet that they will be swamped with business and the money will start flowing in immediately. Unfortunately, this is rarely the case. Work at home businesses take time to develop and grow. Steer clear of anyone who promises a get rich quick scheme or overnight success. These are just tactics to get you excited to sign up with them and make them more money.

3. Not researching enough. Some things need to be done before you can start a work at home business. Discovering your niche and finding out who your target audience is need top be researched. Knowing the demand for your product or services is also important. Strengthen your business from the get go by doing research in advance.

4. Poor choice of product. Choosing a product that is difficult to sell because there is no demand for it, a product that is of poor quality or one that makes very little profit can ruin a work at home business. The future of your business is dependant on your product and customer service. Your business will suffer if either of these is lacking.

5. Not having clearly set goals. Every business needs a game plan. You need a list of clear cut goals for your work at home business to map out your success. Winging it is not necessarily the best way to go as far as business practices.

6. Having trouble separating work and home life. It’s late, you need to put dinner on the table, get the kids to bed and finish the laundry. The only thing is you still have work to do. Finding balance between work and home life can be a challenge for work at home business owners.

7. Quitting your day job too soon. Quitting your day job before securing enough income from your home based business can prove to be a big mistake, especially if you depend on your job for health insurance, stock options, retirement benefits or other company perks.

The truth is that one third of small businesses fail within the first two years. You can avoid being a part of this statistic by being prepared and avoiding common pitfalls associated with work at home businesses.

A home based business is a great way a person can make an extra income on the side or just get out of the normal grind on the average 9 to 5 job. Millions of people in this country already have an at home at one level or another and are generating billions into the economy. It is no wonder why thousands more a day are getting into the home based business game using informative sites such as happilyhomebased.comHowever not everyone is success full at home based business than others. Sites like happily home based makes getting stated easy, but it still up to each individual owner to ensure their own success. Studies have found a few key mistakes that first time home based business owners make. A few of them are the following:Never get into a home based business on a mere compulsionDo your research. Make good use of at home business finders like Happily Home BasedChoose a starter business that you can easily understand. If you have little or business experience choose a home business that is cheap to start and easy control to begin with.Happily Home Based has a wide selection of Home Based Business Opportunities at many different levels of budget and commitment.If you feel hesitant to take on a home business all by yourself find a partner, a friend, family member, colleague, whatever, to help spread the risk and responsibility out.Don’t bite off more than you can chew, sums it up.Don’t give up so soon. Creating home based business from scratch takes time, and you may not get a return on your investment in a matter of weeks. You have to build up reputation and the cliental and money will eventually come in.There’s nothing wrong with buying an existing business or franchise that can be based at home, in fact, there may be less risk involved if it already has a track record of being successful. However, it can be hard to track down those for sale that can be done from home, if that’s where your heart is, that’s why websites like Home Based Business for Sale are useful. This is one of the most popular directory sites of its type, featuring home franchise and other home business listings; while providing advice, resources and tools for fledging entrepreneurs.And finally… Yes unfortunately some business will fail. Always remember that a home based business is a business NOT a hobby, and if you treat it so you will lose money. However, if you do it properly, research your business at sites like happilyhomebased.com, and you will join the millions of American cashing in on at home businesses.