Are These Money Demons Haunting You?

Walk through this financial house of horrors and see if your business is performing like a dream or creating a nightmare

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It’s October, the time of the year when we flock to haunted houses, tell scary stories and work up creepy costumes for trick-or-treating. So there’s probably no better month to consider the ghouls, goblins and worse that threaten to suck the lifeblood from many small businesses. These money management mistakes can keep you up at night.

But fear not — knowledge is freedom. And demons like these are banished with some care and common sense.

1. Keeping sloppy records. There’s no end of mischief that can result if you don’t have a clear, concise bookkeeping system that can show you in an instant what’s going out, what’s coming in, who has paid you and who hasn’t, what bills you owe and what you’ve paid.

Ideally, you’re keeping your books with appropriate computer software that fits your budget, can be used to track trends, alerts you to overdue bills (whether you owe them or they’re owed to you), and integrates with your bank account so it’s always up to date.

But even if you’re still old school enough to trust the good old paper ledger for these records, at least make sure you’re using one. Keep it well organized and up to date. And remember: The better you are at doing the latter, the easier it is to do the former.

2. Mixing personal and business expenses. You’d think this would be a no-brainer. You’d be amazed how often it happens.

Maintain a checking and savings account, along with one or more credit cards, that are only for business income and expenses. The better you are at keeping those separate from your personal transactions, the less trouble you’ll have documenting expenses and income at tax time and the lower your risk of having a legitimate expense questioned or disallowed in an audit.

3. Overspending because “Who cares? It’s deductible!” It can be so tempting, especially to people just starting out in business, to spend more than you should. “I need that,” you think. “And after all, I can take the price off my income and pay less in taxes.”

All true. But remember this: When you reduce your taxable income, you’re cutting your profits. Or to put it another way: For everything you buy that’s deductible, you still had to do the work so you could pay for it. Business expenses should be for what you need and should be budgeted for as best you can. And on the flip side ...

4. Underspending because “Who needs it? I’ll just do it the way I’ve always done it.” Some people learn the lesson about demon No. 3 just a little too well and skimp on necessary expenses because they’re afraid to spend money. When new technologies come along or old tools wear out, be willing to spend appropriately to make sure you have the equipment that will do the job for you. And speaking of skimping …

5. Skimping on advertising and marketing. Yes, the world has changed from the days of radio spots or phone book ads. But some form of advertising and marketing is still necessary to draw the attention of potential customers. Word-of-mouth is good, but it’s not always enough. Knowing which particular marketing channels work best in your community and for your kind of business can be a challenge. But that’s no excuse for simply ignoring the importance of getting the word out about what you do.

6. Deferring maintenance on your equipment. It doesn’t matter why you’re putting off routine care for your tools and vehicles. Maybe you think you don’t have time or you figure you can save money on your bottom line. Wrong. There’s no savings in a truck that wears out faster because you decided you didn’t have to get the oil changed as often.

7. Failing to seek bids when choosing vendors and suppliers. Most of your customers probably have gotten estimates from one or more of your competitors, at least the first time they hired you. You need to do the same. Loyalty and relationships certainly have their place in business, but they also need to be earned with good service and fair pricing. Don’t treat your own wallet any less carefully than your customers treat theirs.

8. Refusing to take credit cards. If you go out on a job, you want your customer to be able to pay you as conveniently and quickly as possible. And that means being willing to take plastic, not just paper. There are legitimate concerns when deciding what policies to observe when accepting credit cards, given that you will have to pay a fee to the card processor. But to flat-out deny credit cards under any circumstances simply punishes you — and probably needlessly turns away business.

9. Hiring on a whim. It’s harder to find skilled workers these days. But simply relying on “instinct” or taking any warm body that walks through the door sets you up for the inevitable cost of employee turnover.

Instead, consult with a human resources expert on how better to assess job applicants, not just for their skills, but for their attitude and how well they’ll fit your particular company. Consider whether you might want to improve the labor pool by working with your local technical school to sponsor apprenticeship programs in your trade.

And if you have a lot of turnover, be willing to look at what you might be doing to contribute to the problem. Do new workers have an opportunity to grow on the job and gain new skills? Are people from diverse backgrounds made to feel welcome? Are your pay scales keeping up with the marketplace? And are employees free to contribute their ideas on how to better do the job?

If the answer to any of those is “no,” you’ve got work to do. Get on it.

10. Underpricing your work. You’ve heard the old joke: “I lose a few dollars on every sale, but I make it up on volume.” It’s fine to aim to be the least expensive alternative, but first make sure you’re covering all your costs and earning an appropriate return. If you’re getting consistently beat on prices, examine what you might be doing wrong, including making sure customers understand the underlying value of what you offer compared with your competitors.

11. Failing to hire a financial professional. Every business needs someone to do the bookkeeping, but that’s not the point here. You also need someone who understands your business finances and can give you advice, both from a big-picture perspective and from a close-up point of view.

That someone is probably a certified public accountant. Ideally, he or she will know your industry, or at least be willing to learn about it in detail and with an open mind so as to give you the best guidance.

So take a hard look at your business. Are any of these demons lurking in the corners? If so, shine a light on them; then set about ridding them from the premises.



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