Most of the small businesses have to face trouble while maintaining a positive growth and consistent profit margins. This happens merely due to some sort of things, which you don’t pay attention to at the initial stage of starting a business. The intensity of early devastation may seem to be ignorable, but later on, it takes a huge chunk out of your hard earned profit.
It is hereby essential to identify the main causes associated with business losses at the earliest stage. The most important factor to consider while running a business is to make financial systems and procedures with a view to monitoring the actual financial status of a business.
So, to give you an idea as to what elements can prove detrimental for your business and how to avoid them, 5 of the most conclusive reasons have been included here.
I. Lacking an Effective Expense Management Policy
It is simply not possible to run a business efficiently if there is no expense management policy. Despite this fact, various companies don’t even maintain certain procedures and policies to report each and every expense. It is of great importance to identify the loopholes by following a strict policy when dealing with the expense management problems. Discussed below are some of the mistakes that most businesses do make while managing the expenses.
1.Unfettered Travel Costs
Unnecessary business trips whether local or international, may serve as a burden over the financial condition of a business. An increase in the airfare and hotel rates has aggravated the situation.
2. Inaccurate Receipts
All the inevitable expenses should be backed by receipts, which are accurate and genuine. Unfortunately, small businesses don’t comply with the receipt submission policies.
3. Data Entry Errors
Most of the new companies prefer manual data entry spreadsheet for keeping the record of expenses. Apart from being time-consuming, it may cause you a considerable loss even with the slightest.
4. Not Setting Up a Separate Bank Account
Setting up a business bank account is advisable, as it helps to monitor the expenses and prevents your personal finances from mixing with the business expenses. Failure to do so will make it difficult to monitor your actual expenses
II. Poor Handling of Business Processes
Following a planned business process or procedure is the key factor in running a successful business. Most of the small businesses face losses due to ineffective strategic planning. This means that in absence of a proper plan to follow, you won’t be able to evaluate the actual financial position of your business. Meaning thereby, you may encounter the issue of negative cash flow by spending more than you actually gain. Mentioned below are some of the common pitfalls, which lead to the failure of a business.
1. Failure to Create a Budget
A realistic budget helps you to meet the financial goals of your business. Without a budget, it would not be possible to carry out business operations effectively. Moreover, you can’t control the expenses, which results in difficulty to managing the financial aspect of your business.
2. Using Ineffective Accounting Software
The accounting software or cloud-based applications are intuitive and easy to use. They allow you to update your accounts through their automated data entry facility. In addition, you can take benefit from some other features regarding invoices, receipts, or stock tracking. However, these advantages are associated with reliable and patent accounting software. On the contrary, there are some cheap and less effective software that may cause serious trouble while managing your accounts. Some of the disadvantages associated with bad accounting software are listed below.
- Cost more than they serve
- Fewer features and more limitations
- Take more time than manual bookkeeping or accounting
- Data is less secure
3. Failure to Choose a Good Time Tracking Software
The most important thing to consider while choosing a time tracking software is the performance of its time tracking feature. This is surely the basic theme of this kind of software. Its proper functioning is necessary to ensure that employees can manage their time properly.
However, if the time tracking software is not at par with the desired standard, this may have a drastic effect on your business. To know how a bad time tracking software can reduce the working abilities and productivity of your employees; just take a look at following aspects.
- ‘Real-time’ time tracking is not possible
- Fails to provide perfect communication among the employees
- These types of software are vulnerable to cyber attack
- Cloud storage may cost addition expenses
4. Failure to Manage Cash Flow
This is the most common reason associated with the failure of small businesses. Even if the company is showing a profit on paper, there might be some serious problems when it comes to cash flow management. The basic reasons for poor cash management include:
- Unsatisfactory credit control
- No plan for capital management
- More cash flow regarding exceptional expenditure
- Late invoicing and other bad accounting practices
5. Inadequate Management Control
Irrespective of the size, almost all businesses require a strong and well-devised management plan. It elaborates that how a business is going to target the best markets with competitive margins and prices. Hence, failure to understanding the markets, costs, and needs of targeted consumers may amount to inadequate management control.
III. Using a Low-Quality Invoicing Software
If you are running a small business, an efficient invoicing software may help you in streamlining the procedure. Since timely invoicing is inevitable for sustained cash flow, it is not advisable to take chances by using low-quality invoicing software. It is estimated that most of the small business suffer losses due to these types of software. In order to evaluate that how cheap software may affect your business growth and stability, just continue reading the information provided under.
- Low-performance Invoicing software lack necessary features, which are available in their competitors. The limited functionality makes it impossible to complete the invoicing process more efficiently, causing your time and money
- Only a limited number of users can access such software, which causes trouble for other users to access the software. This results in unpleasant delays during invoice generation and other similar accounting procedures
- Limited data retrieval facility is another issue that may affect the credibility of your business. You will not be able to retrieve the data of a particular client and generate an invoice by taking reference from previous details
- A low-quality invoicing software is less effective when maintaining proper record of each customer or that of project activities, expenses and pending fees for projects. As a result, you need to generate different types of reports manually and analyze various project aspects. This is a time-consuming affair and may cause a noticeable loss if all the reports are not completed timely
- Freedom to access the invoicing system through cloud storage facility is not granted with such software. Therefore, managing the accounts and invoicing procedure is quite difficult especially when you are away from your office
- Cheap software is not reliable when completing critical tasks, as it may lack required ability to meet the specific invoicing needs
IV. Not Implementing Customer Relationship Management System
For every business, the most ideal situation is to have a good relationship with the customers. It is critical for the success of a new business. If you are running a business and still thinking of using CRM, don’t waste your time and implement it immediately. Failure to do so can cast negative impact over your business. Key Benefits associated with CRM include:
- Better lead management
- The sales pipeline is monitored properly
- Helps to build relationships that result in increased profits
- Turn leads into prospective buyers
- Analyze business metrics and performance standards
V. Lack Impressive Marketing Plan
With a view to be successful, it is imperative for a business to follow a strong market plan. This serves as an ideal way to introduce your products and services to the prospective buyers. Unfortunately, small businesses do not use such a strategy to get the maximum benefit.
On the contrary, a wide range of such business doesn’t even bother to take some steps towards marketing their products. This is true, as the businesses who fail to show their presence do struggle for their survival.
The first thing that promotes your business is its online existence. There is no rocket science behind this theory and you may understand it quickly, as for how important it is for a small business to have a website.
The website is a link between your business and the consumer. In this era of web advancement, more and more people are getting in touch with online products. Since these people research about the products; it provides a chance for your business to be noticed.
It is clear that having a less effective marketing plan can cause irreparable loss to your business. To avoid such happening, just make sure to devise an effective plan.
Apart from the website, you can take advantage of marketing your business via different social media platforms. Moreover, you can capture local buyers by participating in various expos and business related programs.