When you’re launching a new venture, budgets can be tight and there are always unforeseen costs that can make even the best-laid plans go awry. But the only way a small business can survive is if it’s generating a profit, and there are a few things which can eat away at your income without you even realising. Here are some of the surprising ways you could be losing money in your new company without even noticing, and how to combat them.
Poor Accounting Habits
Understanding your numbers is critical for business success. If you don’t know how much money is coming in and going out of your bank account, how can you possibly know if you’re moving in the right direction? Running a business is a complex task and there’s no room for inaccurate accounting, yet so many entrepreneurs make the mistake of neglecting proper accounting practices.
For example, if you’re slow to track transactions or you’re mixing up numbers and recording items in the wrong place, it can have devastating consequences for your business. If you can’t handle the accounting yourself, it’s worth the investment to have a professional take care of it for you to avoid any issues in the future and ensure you stay organised.
Not Claiming Tax Breaks
A large percentage of small businesses don’t take full advantage of HMRC-approved tax breaks or claim relevant tax credits that could save them a considerable amount of money. For example, businesses eligible for Research and Development credits could claim thousands of pounds, and more companies are eligible than many realise. Similarly, “many businesses are unaware that they may be entitled to claim tax relief against a proportion of the purchase consideration of a commercial property”, explains one leading accountancy firm.
In fact, there are numerous areas of running a business that could be made cheaper simply by doing your research into the tax breaks available, or working with an accountant to uncover the areas where your business could recoup some of its costs. The change to your yearly profits could be significant and may well spell the difference between losing money and a successful year.
Overspending on Marketing
These days, it’s hard to find someone who isn’t online in some capacity. But often, in a bid to reach digital customers, companies overspend on their digital marketing. Worse still, they may be spending in areas that don’t deliver the necessary ROI to turn that investment into profits. PPC ads and similar marketing tactics are effective, but they can quickly spiral and become costly. Start-ups, in particular, should focus their attention on organic search and developing valuable content for their customers to transform their website to a go-to resource. While arguably more time-consuming, it’s a cost-saving measure that can result in higher conversions and ultimately higher profits if carried out correctly.
Combined Bank Accounts
A cardinal sin of the business world is using your personal bank account for business expenses, yet it’s something that so many business owners continue to do. But what you may not realise is that combining your accounts could result in you losing money in the future should things in your company not go to plan. When you and your business share funds, the numbers can very quickly become muddied, and it’s difficult to know what money is actually yours to spend.
If a personal emergency arises that requires a large sum of money, how do you know that you’re not spending from your business account unwittingly? Your business could wind up losing money because you’re not in control of your personal and business finances. Switching to a business bank account is a simple and quick task, but one that could keep your budget in check further down the line.
Undercharging Customers
If you’re not pricing your products or services correctly, you could be losing a huge amount of money over the course of each year and it could impact your ability to scale up. Price yourself too high, without justification, and fewer people are going to part with their money. But if you’re too cheap, it could hinder your reputation and also means you’ll be making a fraction of the potential profit.
Market analysis is essential to understand:
- who your target customers are
- what they’re looking for in your chosen industry
- what they’re willing to pay.
Your decision-making should always be backed by data, rather than assumption, whether that’s online research, data from credible sources such as YouGov and the Office for National Statistics, or even your own surveys and research. You might also consider changing the business model you’re using. For example, if you charge per project, you could find that this way of charging for your services is impacting your ROI in a negative way.
Admin Costs
Whether you launch your business from a fully-fledged office or you’re working with a completely remote team, there are always administrative costs to contend with. From utilities and Wi-Fi to printing and mailing costs or office supplies, these costs can deplete your profits if you’re not careful.
It’s all too easy to take these expenses for granted as just something you have to deal with as a business owner. And while that is the case in some areas, the reality is there are often ways to cut back without it affecting your progress. Be sure to keep an eye on the budget when you’re launching a start-up or you might find you’re paying over the odds due to carelessness.
There’s no denying that launching a business is hard work and requires someone willing to overcome challenges. But ultimately the goal is to make a profit and if you’re not paying close attention to these common mistakes, you could wind up hindering your success and your profits by losing money unnecessarily. The reality is that financing can make or break a new business, so be cautious of the above areas so you’re not at risk of spending more than you need to.
