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Learn How To Avoid The Biggest Financial Mistakes Made By Small Business Owners

There are mistakes made by small business owners that can destroy their businesses no matter what their level of experience or the amount of hard work put into it.

Sadly, there is one aspect that far too many small business owners overlook, they do not have a plan to protect their business from pitfalls. Whatever level of experience a business owner has and their approach to success varies from one company to another.

That said, there are certain things that are universal for running a company and bringing in profits.  There are also universal mistakes that will destroy a business, regardless of the industry or experience the owner might possess. The following financial mistakes made by business owners can place their businesses in harm’s way and should be avoided at all costs!

Not Monitoring Their Business’s Credit Score

If you do not know your business score, you need to find out as quickly as possible.  This number, or score, is completely different from your personal credit score and reveals your business’s history dealing with debt.  There are many factors that can affect this number including your payment history, your debt utilization ratio, and the length of this history.  Also, these are all factors that you actually have a lot of control over.

When you want to expand your business growth in a profitable manner, your business’s credit score is extremely important.  This score can help you in the future for getting business financing but it’s also a public record that all can see.  As an example, if a business is thinking about extending your credit but your business credit score is really bad, they could decline to extend your net terms or only offer something that is not a favorable option.

Aspects such as your business credit card payment history can boost your score. Keeping track of this number and checking it on a regular basis could help your business remain in good standing.

Applying For Financing After An Emergency Has Already Hit

Applying for small business funding after an emergency has hit is a really bad move.  Business funding can be used in many different ways.  You can use it to grab onto a great opportunity, bridge a cash flow gap, increase your working capital, or help you out in an emergency.  Let’s face it, you never know when an emergency might hit.  Unfortunately, many business owners wait until the very last moment before applying for funding.  Across the board, that makes the loans a great deal more expensive with higher interest rates and a much shorter period of time to pay it back.  This approach will only add to a business owner’s stress at a time that is already critical.

On the other hand, just because you can get a loan does not necessarily mean you should.  Financing is not free, there are fees and costs that are connected to each and every loan you take out.  It is really important that you absolutely need the money before signing off on the loan.

One of the best alternatives, have a business credit card or a business line of credit that is at your disposal when you really need it instead of running around to apply for a loan.  The upside to this alternative, you will only pay interest on the money you actually use.

Pay Attention To Your Cash Flow

Keep in mind, your cash flow is the most dependable indication of your business’ well-being.  It reveals whether your business will survive over the short term.  As an example, observing your cash flow projections will let you know if you will be able to deliver your fixed cost obligations.

As a business owner, if you are not on top of your finances, on a daily basis, you will be at a great disadvantage.  Let’s face it, you wouldn’t walk around happy as a canary just because you assume you are in great health even though you haven’t had a physical exam in many years.  Well, if you leave all your financial records to your CPA, you will take their word for the health of your company but quite honestly, you really don’t know if that’s true.  You need to know if your cash flow is in a positive place or whether it’s starting to move seriously into a negative state.

Your cash flow will have a significant effect on many other aspects of your business.  It would be a serious mistake not paying attention to your income statements and balance sheets as both are tied directly to your cash flow.

The Sunk Cost Fallacy

As a small business owner, you will inevitably make mistakes, you’re human.  For instance, you might spend money to keep a project going but it’s not working out.  You want to believe this project will work if you just invest even more money into it but, in reality, it’s just getting worse and there is no way of getting your investments back.

The concept behind the sunk cost fallacy, you have invested so much money into your project that you believe you must continue with it, even if it’s not working out.  It’s the same idea behind someone who keeps gambling, even though they are losing big time because they have convinced themselves they will eventually win.

Let’s say you have incorporated a new product into your business or providing a new service.  You have spent a good deal of money and time developing this product or service but it just isn’t taking off.  Instead of living in a fallacy, you must come to the reality that it’s just not working ou and move on.  You will save yourself a lot of stress and aggravation in the long run.  Do not make the mistake of falling into a sunk cost fallacy that has led many a business owner out of business.

As a small business owner, you will learn many lessons along the way as your company grows and just like everyone else, you learn from your mistakes.  If you can avoid major mistakes, you will be so much better off in the long run.  If you can take something from these common pitfalls or mistakes,  your business could be on the road to great success in the near future.

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Make The Choices For Your Small Business Loan

Along with a small business loan comes responsibility.  You must make sure your spending decisions are good investments that will help grow your businesses.

Your small business loan is actually the foundation for your long-term growth and business success.  Whether you are using your loan to expand your business, improving your products or services, or increasing your marketing endeavors to get the word out to consumers, use it wisely.  Let’s face it, the more money that comes in, the more reasons you can come up with to spend it.  You should create a strategy for loan spending and payback plan to ensure you are getting the most on your ROI from your business loan.

Choose The Right Loan & Lender For Your Small Business

You should always do the necessary research before applying for a loan.  What will the best loan for you, will depend on your individual situation.  You want to find loans that offer the lowest interest rates and the best terms.  There are several different kinds of loans including SBA loans that are endorsed by the Small Business Administration, standard term and fixed-rate loans that you will be paid back over a certain period of time, and alternative financing options.

Another important factor is the condition of your credit score.  If you have a great score, there are lenders who may lower their interest rates in order to compete with other lenders.  Therefore, know the market and know your worth in order to negotiate the best loan for your business.  Also, consider some important preliminary steps that will help you get your small business loan including compiling your business’s cash flow projection, and organizing essential documentation.

Save Up Some Money Before Spending Your Loan

You should always make sure you have the cash flow or cash reserve to start making payments on your newly acquired loan. You should take some of the money and set it aside in a business savings account so you will have the money needed to start paying back the loan from the very beginning.

You should look into your current and projected revenues and then start writing down a realistic repayment plan that will reflect how you plan to use the money to increase your revenue and how you will repay it over the term of the loan.  You could take out loans with asset collateral, but it’s not a good idea to use your personal property.  Should something happen and you can’t pay back the loan, you will be risking way too much.

Use Some Of This Money For Marketing Endeavors

Let’s face it, if you need a loan, you probably need to get more customers in order to grow your profits and increase your market share.  You should set some of this money aside to invest in your marketing strategies.  Start thinking creatively, looking beyond television and radio ads, and realize that your marketing does not have to be expensive or a huge undertaking.

Other excellent marketing options should include being more involved in your social media to build a presence.  Joining various community organizations and give your website a facelift!  Giving a fresh look to your website is actually quite important.  People spend a great deal of time searching on Google for “near me businesses and services”.

Even if you have always believed this small business loan is for improving your business, just keep in mind that you must also get the word out about your business help it grow and increase your revenue.

Consider Hiring Some Help

Business owners have a lot on their plates trying to run their small businesses.  You have to balance the books, manage your everyday operations, stock and sell your products, expand your services, and the list goes on and on.

You might consider taking a portion of your business loan to hire some experienced help.  You do not have to hire people on a full-time basis with all the various benefits.  You might consider bringing in freelance help to manage some operations more efficiently and let you get back to other aspects that need your complete attention.

If you already have employees, you might consider offering training and professional development programs.  Investing in your employees will be an A+ for your business and will let your employees feel they are valuable to your business and will help them stay connected with advanced development.  Training will improve their productivity as well as increase their level of experience.

Debt Consolidation

You might want to look into a debt consolidation program if you qualify.  You could simplify your financial obligations to get back up on your feet.  Think about getting a business loan with a better interest rate and better terms.  Use some of the money to pay off your outstanding debts and loans that have higher interest rates and poor terms.

Consult with your professional loan advisor or a third-party financial expert to decide if consolidating your debt is the best avenue for your small business.

Invest In Much-Needed Inventory & Equipment

In order to stay flexible, there are times you must buy products or upgrade your services.  Applying some of your business loan will help you improve your products that your current customers or prospective customers might be interested in  It could also give you extra cash to buy inventory at the right time and at the right price.

If you are considering bringing in a new product, start with a small order to test how well it sells.  If it’s taking off really well, then and only then, increase your next order.

You do not have to be a service-based business to think about new equipment.  New equipment can help your business run efficiently and smoothly.  You might want to think “technology” by upgrading equipment such as your computers or performing maintenance on equipment that your business needs to meet your customers’ demands.

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4 Ways to Help You Acquire Funding From International Investors

International investors can be a great opportunity for businesses just starting up who are in need of capital.  Let’s take a closer look at ways you might be able to get the international funding you are looking for.

Many startup businesses face challenges in obtaining working capital for growth.  They are continually competing in a world that is overcrowded with businesses referred to as a business ecosystem. The business ecosystem comprises of organizations such as suppliers, distributors, competitors, etc, that are involved in the delivery of products or services. Unfortunately, this is the biggest reason why so many new ventures will fail.

A study performed by CB Insights discovered that approximately 29% of new startup businesses fail because they run out of money.  Now you can see how really critical having enough money is for both small and medium-sized businesses,  even though there are other factors that add to a business not having access to funds.  Not having a good ranking makes it very difficult to receive funds because of the strict demands set by most financial institutions.  Adding to that, there are hundreds, if not thousands, of startups, both small and medium, popping up on a regular basis, making it very difficult for businesses to get investors from normal sources.

Businesses that are determined to succeed, despite the challenges, are now broadening their searches in the global arena for better opportunities instead of staying local.

There are several other avenues for receiving needed funds such as private equity firms, venture capitalists, and other investors that are more than willing to place their money on businesses that are located outside their own countries.  As an example, Finland attracted approximately $241 million from foreign investors last year alone.  This shows just how hungry foreign investors can be for businesses that are looking for funds.  If you decide this is a good option for you, here are a few things you should keep in mind when searching for global funding.

Place Documentation & Compliance In Order Of Importance

Regulations and compliance issues vary greatly from one region to another.  Investors from foreign countries must ensure your business is in compliance with the regulations in your country so they will know their investments will not be fined for breaking rules.  You must show that your business complies in all areas including relevant employment, benefits regulations, FDI and banking regulations.  Your business structure must comply with all set rules and regulations within your region or country.

Your documentation must be up-to-date and complete in order to remain in the market of seeking investments.  Your documents must have detailed descriptions of your competition, pricing, and financial model, organizational structure, your business leadership, description of your products and other relevant documents that will ensure that your business is ready to take off running once you have delivered your pitch.

Understand Fees & Charges When Using A Finder Service

There are many businesses who choose to use a Finder Service when looking for overseas funding.  Finder services can be an individual or a company that helps a business locate potential partners or investors.  Even though these services make it easier to secure funding, they also come with a high price tag for their finder’s fees.

In the United States, it’s common practice for finders to use the Lehman Formula to calculate how much they should charge a business once funding is secured.  Therefore, be aware that paying anything over 10% for any amount of funding is considered exorbitant.  You must stay on top of finders’ fees and choose wisely.

You will be dealing with dozens of currencies from potential foreign investors so it’s really important you know your way around the forex market.  Banks and other financial institutions will usually add as much as 3% markup above the market rate or most currency pairs, costs that may lead to your business getting less in the way of funding.

Also, stay up on recurrent charges such as taxes and annual fees that your investors will have to cover before agreeing to an investment with your company.

Don’t Overlook New Opportunities

There’s no doubt that technology has changed the face of investments.  ICOs or Initial Coin Offerings have helped startups raise billions of dollars in funding over the past few years and are literally surpassing investments from traditional investment avenues like VCs and private equity funds.

New investment avenues like Initial Coin Offerings will allow investors to put money on businesses outside their own countries and sometimes without intermediaries that usually make it more expensive to invest.  They also allow businesses to interact with potential investors that operate outside your typical banking systems.  According to data accumulated and published by Payday, approximately 13 million Americans have limited to or have no access to aspects of your traditional banking system.  That said, it doesn’t mean that these same people wouldn’t be interested in investment opportunities as long as it’s the right platform.

It’s highly advisable you do your homework on absolutely every opportunity that presents itself as a result of rising technologies.  Look into blockchain-powered peer-to-peer lending platforms, AI-powered investment avenues, and other related opportunities to make sure your business does not miss out on opportunities for going global.

Look Into Networking Opportunities

Foreign investors are continually dealing with unfamiliar tax rules, legislation, and various markets that make global investing a risky business.  Therefore, it’s always a good idea to have an intermediary or a common platform that both a potential foreign investor and your business will share to lessen some of the risks.  International communities and events might offer a perfect platform for risk alleviation while building trust.

Always be on the lookout for events that connect global investors to small and medium businesses along with startup businesses.  Some events might include Startup Grind and TNW Conferences.  Look into international opportunities such as 500 Startups and make the effort to join international trade associations across the world.