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7 Critical Business Financing Mistakes

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.

Insuring Your Small Business

The number of small businesses starting up in the UK increases every year. The people starting a new business do it for a variety of reasons, to follow a dream; the need to stay at home combined with the need to work, redundancy, the list is endless. The growth of broadband Internet has fuelled this growth in many sectors. Some of these businesses will need financial backing from a venture capitalist and some will not; but all will need a business plan.

You might never need to present this business plan to anybody, even if you don’t it is still wise to have one. This will act as an aide memoir when you feel everything is collapsing about you; or when everything is moving so fast it can get your feet back on the ground.

However enthusiastic or skilled you are in the business you plan to start you are probably not skilled in business practices so your business plan, when presented to a business expert, will highlight the missing knowledge. Without it they do not know what you do not know about business. Anybody you ask to help you finance or support your business, whether it is a bank, stock suppliers or a venture capitalist, will want to see a business plan before even considering investing in your idea.

But what do you put in a business plan and how is it structured. Well you have to show that you have researched the market thoroughly and understand the competition you may face. It has to be well presented and show a severe attention to detail. The plan should reflect a sense of professionalism, with no spelling mistakes, realistic assumptions, and credible projections of cash flow. If you find all this daunting there are web sites, companies and associations out there to help you.

One thing you must remember, the better you plan your venture the better you are capable of solving problems that may occur. The failure rate of small businesses increases year by year, but this is because inadequate time was put in beforehand finalising a business and financial plan for the venture.

You may or may not need financial backing for your new venture. When sitting down and planning out your dream you should work out the finance you need for stock, business supplies, advertising, equipment and wages for the first few months while you build up custom.

Do not forget insurance. Business insurance is for the big boys you might think, not for you sitting at home behind a computer running an Internet marketing concern, cleaning windows or making wedding dresses. The law sees you in the same light as the IBM’s and Fords of this world. Your personal and home insurance will be invalid in most cases.

Some companies offer a special small business insurance package or will tailor make a business insurance package to suit your requirements. Whatever it is you need it will not cost a fortune, it will enhance your business standing and confidence and could save you a fortune. These days it only takes one litigation claim against you to force you out of business and end your dream.

The mainstays behind any small business insurance package are public liability insurance and product liability insurance. It is often a requirement that before you can work on or visit third party premises that you have public liability insurance. This provides cover against death or bodily injury to the public and loss or damage to property not owned by you or in your custody or control. Product liability will cover you against the supply of goods to someone else which through your negligence causes injury or damage. It includes solicitors’ fees, all costs and litigation expenses, damages and claimants costs for which you would be legally liable.

One thing to be reassured of when starting up a new business, nobody wants you to fail. There are companies and associations out there who want to help you. Some are free such as the local chamber of commerce who can provide you with a wealth of information including employment laws, local companies who might need your services and useful addresses. There is the Federation of Small Businesses which has local groups who meet regularly to discuss topics that are affecting them or to see presentations from service industries. On top of these there are local business support agencies, banks, venture capitalists and many more. They are all in business to help their customers as much as you are in business to help yours.

Business Card Etiquette for International Businessmen

In a globalized world, international businessmen require more than certain skills and knowledge in their corresponding financial or commercial branch, but also the basic understanding of customer’s local culture to avoid frustration, misunderstanding and even potential embarrassment.

Whether a company or any independent professional, should research not only to get cheap international plane tickets to make the trip more affordable, but also acquiring basic facts about regional culture and etiquette, including business cards.

If you are involved in international business, then you need to keep up with your client’s country values, norms, behaviors, and even everyday facts including art, food, fashion, architecture, etc. The more you learn about your clients’ nations, the more opportunities to close successful deals. However, any solid relationship begins by recognizing the importance of learning the proper etiquette.

Business cards are usually the first thing that any customer or prospective client will get from you, so you should make sure they cause a positive impression on them. The way they perceive you from the beginning will leave a lasting impression in their memory, giving them right from the start the impression whether to create a business relationship with you.

As an example, getting cheap international plane tickets to attend a meeting abroad is fine, but your cards must reflect you are not trying to save costs. Every nation has different idiosyncrasies, but general business card etiquette encloses the guidelines to make the best impression on current and potential clients.

Becoming a successful businessman or businesswoman is easy if you simply read a little bit about customs and practices of the region where your partners, co-workers and clients live. Knowledge is generally the best guidance, pointing you in the right direction for creating international lasting business, fulfilling both intentions and expectations coming from each partner involved.

Furthermore, business card etiquette is only one aspect of great importance when it comes to international exchange of business cards, because unlike America or Canada, in other countries, business cards have very different meanings, and not only a convenient way of capturing essential personal or businesses details.

This way, business cards in the United Kingdom are relaxed and involve just a little ceremony. Keeping the cards clean and presentable, even if carried in a pocket, but in Japan, business cards are exchanged with great ceremony and they should be kept in pristine condition, given them with only one hand and always received with two hands.

Getting cheap international plane tickets save money. Invest that money in quality cards that speak by themselves about your business, and include in them your title, university degree or any other honor, if you have any, because many countries all over the world place emphasis on status and hierarchy.

With different approaches, business cards are considered as a representation of the owner, consciously or unconsciously, so make sure to apply what the proper business etiquette demands in every region where you move.