Common Spending Mistakes in Small Businesses

easy way

There is no denying that running a business is not always easy. There are plenty of challenges that reverse growth or halt progress. Precisely, if these challenges have a direct impact on business finances, it may cause several other risks that your business needs to face. In other words, managing finances is pivotal to stay on top. And if you’re a startup, finance management becomes as important as serving existing customers or finding new leads.

But, if you are like business owners who find managing money or bookkeeping a daunting task, you must know your common spending mistakes to stay ahead in the business domain. This is one way you can mitigate not only financial risks but also monitor the cash flow of your business. In other words, by controlling your spending and cash flows, you improve success chances and your profitability also.

We have enumerated a few common spending mistakes to help you steer clear of the financial management of your business.

Common Spending Mistakes in Small Business

1.     Failure in Keeping Personal and Business Expenses Separate

This might sound trivial to you, but many business owners when entering the business world make this mistake. Remember that you are in the early phases of your business, it is vital to keep the expenses separate. Although sometimes you need to rely on the personal finances to support business expenditures, you need to ensure that you h have a separate budget for your business.  Also, relying on the personal expense to fund business may cause problems in the long-term.

Once your business is operational and starts serving the customers, separate finances by making a separate business credit card. Make sure you have a separate bank account for your business. Doing so can be extremely helpful in managing tax problems and avoiding bookkeeping confusion subsequently.   It will also empower you to evaluate potential or existing cash flow issues and overall business finances before they turn into a major problem.

2.     Not Creating a Budget

You might find easy budgeting, but you cannot deny its long-term value that outweighs all initial stress and effort.

Creating a budget means analyzing how much have you earned and how much you can invest. An organized budget helps you make informed decisions about all business matters that include everything from supplies purchasing, staffing, and training to inventory. Conversely, when you work without a budget, all these tasks become challenging and may cause you significant cash flow problems. This particularly affects your business if it works with seasonal shifts, and you need this cash flow to maintain business operations during the slow months.

Fortunately, there is a wide variety of apps such as Scoro, Centage, and Adaptive insights that can help entrepreneurs not only create but also maintain a budget. Not to mention how these budgeting apps keep track of your business expenses and send you a handy report at the end of the month or year. This allows you to do preparations for tax seasons and review performance.

3.     Failure to do Financing at the Right Time

All business owners know that working capital is an essential thing to operate the business and increase its growth. If working capital runs low, your business might face a lot of issues that not easy to resolve it right away, and that may vary from unpaid bills, mounting fees to lower credit scores.  Not only that but making payrolls also become a challenge while tackling such issues. The situation may create problems when it comes to retaining your potential employees. The problems like staff shortage, inventory, and supply management lead to decreased revenues and unsatisfactory customer services.

Ultimately, the failure to meet your business financial obligations can impact different areas of business. That is why it is important not only to identify but also address the cash flow issues and to prevent poor working capital in a easy way. It is better if you seek assistance about taking control of financial matters before they become problematic for your business.

4.     Ignoring Poor Credit Scores

Recognizing the right time to consider alternative financing options like a line of credit or loan is important. However, your due diligence will not benefit you if you fail to qualify as a borrower. That means, it is essential to be vigilant about both your personal and business credit scores.

It is also important because your credit scores impact your ability to use financing solutions with suppliers or vendors. The arrangements often help business owners easy fill the gaps in their cash flow.  Moreover, with a good business score, you can reduce the insurance premium and interest rate on your loan.

Sometimes, your credit scores contribute to secure many affordable financing terms; particularly when you opt for loans, credit cards, and line of credit.  The phenomenon is confusing for many people since they are advised to keep their personal and business financing separate as an ideal practice.  

However, it is important to understand that when you sign a lending agreement as a primary applicant,  banks use your credits to determine your eligibility, repayment terms, and interest rates.  Customers are sent an annual credit report, and it is good to use it for your advantage.  Although the business credit report is hard to obtain, you can get them through various platforms.

5.     Overspending on Startup

When starting a startup, you are naturally optimistic that your business will produce good revenues if you invest a large amount in it. This optimism sometimes leads to overspending, which is another common spending mistake. To avoid overspending, research carefully about how much inventory or staff you need to take a good start.

Final Thoughts

When running a business, you may face many financial issues, and to plan for all potential scenarios is not easy. However, when it comes to cash flow, various things can be done to avoid cash flow issues. The most important thing is to be proactive in whatever approach you use to manage your business finance.  Besides this, budgeting and healthy credit scores play an important role in keeping business finance issues at bay.

Thus, the given spending mistakes are very common when a business is in establishing phase. However, you can avoid them by planning and evaluating everything in advance.

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Automation: The Risk to Financial Jobs

Suppose it is 2030, and you’re teaching in a business school. What will be your reaction to seeing just a handful of learners attending your class?

Well, it must be disappointing, but it has nothing do with your pedagogical skill, nor it’s about the subject matter you’re teaching or your school’s ranking. Students do not enroll simply because the finance sector has no jobs for them. And automation is one of the main reasons behind this phenomenon.

You might find it hard to believe because management, economics, finance, and accounting are some of the popular subjects at the graduate level in the most universities. Students opt for these subjects as they are associated with high employability however; that is changing due to advances in technology and automation.

According to Opimas a renowned consulting firm, the future is going to be harder for many universities in terms of selling business-related degrees. Another latest research showed that by 2050, nearly 230,000 financial jobs will be lost to artificial intelligence agents and bots.

To put it simply, when a vehicle manufacturer finds aluminum or any other material lighter, easier and cheaper to make cars with than steel, they stop using it. They replace it to gain functional and financial advantage. It is the same when it comes to evaluating the future of the finance sector.

The current situation raises a few questions:

Are current and prospective financial jobs under threat? Are robotic advisers/employees the future of finance?

Let’s find out.

Artificial Intelligence- A New Generation

A survey from Aite Group –a research firm evaluated that businesses have started investing in automated portfolios. The investment rate increased to 210% in 2015. Many recent reports by market analysts found that robo- advisers have taken over already in some giant corporations. Wall Street is just one of the examples that have replaced hundreds of its financial analysts with robo advisors and high-tech software.

Oxford academics in its 2013’s paper claims that approximately 74% of professions are at high risk of becoming automated in the next 10 to 20 years; 54% of jobs among them will be in the finance industry, which is alarming. The phenomenon is not just confined to the United States. Indian banks, for example, have also reported a decline of 9% in headcount in the last two consecutive quarters due to the hiring of robots at the workplace, which shows how automation is taking over in the finance sector.

Perhaps, it’s not surprising in finance, particularly as the banking industry is all about processing information. And most of its key operations, like passbook update and cash deposits, have been digitized. This is one of the reasons why financial institutions and banks are adopting advance Artificial Intelligence (AI) technology.

This new generation of technology has enabled institutes to automate their financial tasks that were traditionally performed by humans. That includes risk management, operations, algorithmic trading, and wealth management.

For instance, the COIN program and Contract Intelligence that run on a specific machine learning system, help banks shorten the time taken to review loans. Plus, the software is great at providing impeccable loan servicing to customers. Considering AI‘s growing dominance, Accenture predicts that the banking sector will make AI a’ primary way of interaction with the customers within three years. It is because AI enables a simple and easy user interface to help banks provide a human-like client experience.

Luvo, in this regard, is a virtual chatbot that uses IBM Watson technology to learn and understand from human interaction, making manual workforce redundant in the process.

Fintech Grads- A Traditional Threat to Banking

This might sound surprising to you, but universities are revising and reviewing their traditional education blueprints to adapt to new technological disruption in the financial job market. Business schools, like Georgetown and Stanford University, are planning to include “fintech” in their MBA programs. This inclusion aims to make students learn, understand, and master financial technology.

One reason why Fintech firms are being considered an existential threat to traditional banks is that they work differently than traditional banks. Plus, not only do fintech firms understand consumer issues, but also solve them in a fraction of time. They have become a reliable funding option for customers look to invest in various businesses.

The key weakness of the banking system lies in its technical debt. Banks are lagging due to their antiqued IT setups that date back to last century. Fintech, on the other hand, is in a winning position with its fast-moving and technology-led services, particularly in investment and loan systems for e-commerce businesses.

Kabbage is a perfect example that gives technology-led loans to e-commerce businesses for which traditional banking is not only slow but also inflexible when it comes to lending finances.

Application Programming Interfaces (APIs)

Application Programming Interfaces (APIs) is another financial innovation that enables Fintech providers to create applications on data of bank accounts. APIs will be a long-term solution for data providers as it takes away the crucial information (that only traditional banking employees have). Fintech providers will have the same quantity and quality of data without having any physical branches.

Is Dependence on Robo Advisors Safe?

There is no denying that robot advisers, AI, and Fintech are changing the way traditional banking is done. Many financial analysts consider them the biggest drivers in the financial sector.

However, for many analysts, it’s still not clear to what extent automation and AI will prove to be advantageous for the financial sector. They believe that relying completely on artificial intelligence could backfire if there are no humans to supervise everything.

No doubt robo advisors are inexpensive and save a lot of time and effort when it comes to creating investment portfolios. But there is no guarantee that they will not struggle when it is about taking correct precautionary measures if the market becomes volatile and thousands of machines are trying to operate the same thing at great speed.

In 2012, Knight Capital Group- a robo stock trader lost $450 million in just 40 minutes when it went on a spending spree. That means these well programmed and high-tech robo-traders can cause chaos and fatal errors in the financial markets.

Final Thoughts

Overall, there is no denying that rapidly growing dependence on automated devices and robo-technologies are raising many concerns for financial jobs. From banking systems to other financial institutes, automated technologies, like Fintech, APIs, and AI, are considered an integral part of the operations. They are slowly taking over and making employees redundant.

 

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Why the End of the Year Is the Perfect Time to Review Your Finances

Whether you have a startup, a small business or a large enterprise, chances are the year has passed at the speed of light for you. You were designing your marketing campaigns, availing opportunities of growth and looking through reports when the year-end arrived. While people dedicate this time of the year to holiday delights and festivities, this also happens to be the perfect time to do a review of your finances whether you are just an individual with a 9 to 5 job or a small business. Why should you spend your end of the year for a financial review? Here are the top reasons.

A Strong Visual of Your Financial Standing

The most important thing about a year-end financial review is that it gives you a complete visual of where your business is standing at the moment. Everything that has happened throughout the year is now on the reports before your eyes. You can look at the reports and see what has performed and what has not performed. You must have put a lot of money into marketing your products, services and the brand as a whole. You can now see which of those campaigns have yielded good results and which of them have proved to be futile.

Same goes for your account receivables. Compare your account receivables with those from the previous years and see if there has been any increase or decrease. If there is an abnormal increase, it is a telltale sign that you might need to change your payment plan or push more to receive your pending payments faster. Every activity you have done in the past year has painted a picture, which is now in front of you. Whether you grew as a business, stagnated or receded is clear at the end of the year.

The Best Time to Set New Goals

Based on how you performed in the preceding year and whether or not you have achieved your set targets and goals, you can set goals for the coming year. Your previous year’s performance should clarify how you have to set your targets for the coming year. Keep them realistic yet motivating and challenging enough to leave room for hard work, struggle and progress. Not only should you be looking at how successful you were in achieving previous year’s goals, you should also pay attention to your current financial standing.

Best Time to Apply for Loans and Credit Processing Services

Regardless of how long you have been in business for, when you go and apply for certain services, the service providers take a look at your previous year’s performance. Let’s say, for example, that you want to apply for a merchant account (maybe a high-risk one) so you can start processing credit card requests for your customers. When you approach a merchant account provider, they will ask for some history of your business activities—at least 3 months. By the end of the year, you have enough data to show to lenders and credit processing services to convince them to do business with you.

Of course, a financial review will give you a good look at whether you have done enough to impress these service providers or not. You can apply for these services with a quarterly credit history as well, but in most cases it will not be considered sufficient.

Best Time to Get Your Tax Files in Sync

Yes, you have been extra careful about your tax filing and preparation the whole year, but the overall integrity of your records still has a question mark on it. It is extremely important for you to prepare your tax files at the end of the year and calculate your liability with utmost accuracy. While tax preparation softwares have made the job much easier, complex tax files still need attention from your personal accountants to get everything in sync. Now, the important thing here is that a review does not only help you escape penalties that you might attract by putting wrong information on your file. You want to update your information at the end of the year because you want to accurately calculate your own benefits too e.g. tax credits, exemptions, standard deductions, itemized deductions, etc.

Time to Start Afresh

Your business might not have been a very successful venture. In fact, many businesses don’t make the best start and it seems in the beginning that it would be difficult for the business to survive. However, small changes in strategies and cuts in costs can prove to be greatly benefitting for businesses. The best time to start afresh and renew all your reports and files is the end of the year. While you can change your strategies and plans midway too, it is natural for most humans to feel the need for a new start at the start of a new year. For example, people can decide to lose weight at any time of the year, but it seems it makes most sense to them when they do it at the start of a new year.

If you think your business has not performed really well, but you still want to give it a shot, the end of year financial review can clear the path for you by telling you if you can afford to give it another shot or not.

Bottom Line

There is definitely no restriction on when you want to make changes to your business plans and strategies. However, people find it natural and more motivating to set new goals, learn from past mistakes and make new moves when a new year starts. Throughout the year your main goal is to keep the ball rolling. However, it is at the end of the year that you have enough data collected from all your business operations and activities to know how fruitful your efforts were, which efforts you should consider in future and the expenses have been keeping you from progressing. In short, a financial review at the end of the year helps you make new and important decisions for your business.

 

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