Top Common Mistakes Entrepreneurs Make

1.You think all the money in the business is yours.

Entrepreneurs often live with the attitude “I = business, company cash = my wallet.” If they want to go on vacation, they take it out of their checking account. If they need to fill up the car, they go back to the checking account. They’re the owners so that they can do it.

Actually, they can’t.

If you work on a prepayment basis, it could easily be the clients’ money, and you’re already spending it, even though you haven’t fulfilled your obligation yet. For example, you make websites, spend the prepayment, but the client changes his mind and asks for the money back. There’s no way to get it back.

Or you will need this money in the future. For example, on the 10th you take money from the current account for a new phone, and on the 20th you have to pay your employees’ salaries. Some of them will lose their wages because you bought the phone with someone else’s money.

2. You’re chasing more sales

Entrepreneurs, adults forget about the concept of “profit” – and evaluate their business by the amount of money in their checking account. Indeed, it is easier to count than profit, except that they say nothing about the effectiveness of their work.

For example, an entrepreneur sold 500 bouquets in a month with an average check of $ 30. Multiplied the numbers, got 15,000$. After that, he deducts the maximum purchase price – a remainder, say 8,000$. It seems normal. He earned, happy.

And if you subtract the salaries of salespeople, transportation of goods, rental of premises, marketing costs, and taxes, you get not 8 000 dollars, but minus 2 000. You can try using the pay stub blank template to count your profit, including taxes and all other costs.

3. Can’t quantify management decisions

Every action in business should be evaluated through the prism of profit. There are no good or bad management decisions; there are profitable or unprofitable ones. But entrepreneurs do not calculate the effect of their actions.

Are you going to increase the conversion rate? Make a sales funnel and see what kind of increase in revenues and profits it will bring in the end. Want to automate your business processes? Estimate how much time your employees will have freed up. Then consider whether that time could be spent more profitably.

How to avoid these situations

1. Take money out of business for yourself according to your roles.

You probably have two roles: owner and director. The owner is entitled to dividends from profits. Determine what percentage of the profits you will take for yourself and stick to that number. The director is entitled to a salary. Look at how much directors earn and set yourself the same amount.

Dividends and the director’s salary are yours. Everything else is business.

2. Remember that an increase in revenue is not always an increase in profits

Open any economics book. It says that when the volume of sales increases, the price goes down, and the cost per unit of goods goes up. It so happens that one sells 10,000 units of goods per month and works at a loss, and the other sells 1,000 units – and a profit. Increase sales only as long as it gives an increase in profits.

3. Make a financial model when you plan to change something in your business.

A financial model is a table that shows how changes in one measure affect all others, including the most essential, net profit. It makes it easy to understand if you should work on this or that figure or if it’s ineffective.

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