Capital determines whether a business will fail or succeed. Making the wrong financing decisions is one of the major causes of loss making or collapse of business ventures. Lack of sufficient funds can cause any business to collapse from small businesses that are run by the owner to large multinational conglomerates. However, small businesses are more likely to collapse due to bad or wrong financial decisions. You should avoid these mistakes when you are setting up your business in a foreign country.
Poor Record Keeping
Good records form the foundation of any prosperous business venture. The most important documents are tax records, payrolls, and profit and loss account and bank statements.
When calculating taxes you should file the tax documents. This will provide you with references in case you were over taxed or under taxed. The tax records can be used as evidence if you are accused of under paying taxes or when you want to get a tax refund. If you cannot file the tax documents you can hire an accountant. For most small businesses this will decrease the revenue. You should hire accountants only when you cannot be able to calculate the taxes yourself. As your business grows the services of an accountant will be of much help in the long run.
When you are paying your employees you are required to pay taxes to the government on their behalf. As an employer you should record these taxes so that you make the correct payments to the government.
The best way is to keep the payroll liability in another account other than the one used to pay for other operating expenses. Keeping liabilities in the same account will increase the amount of cash in your account. This will make you think you have a lot of cash when you actually don’t have any.
You should ensure that all the bank records you keep are up to date. These records are very important since they show your credit history which is very important when you are borrowing loans.
Failing To Follow Your Business Plan
When starting your business you should have a plan showing how you intend to grow and expand your business.
The business plan you create should be specific, measurable and realistic. Most business owners create business plans that they don’t follow. Failing to follow your business plan leads to down fall as you are not able to make good decisions.
The business plan should outline how you expect to increase revenue and grow your business. You should do some research on the pricing you intend to charge. The price you choose should be slightly lower than the average price.
High prices reduce the number of customers while low prices will lead to low cash flows.
The business plan should enable you to create high quality products or services instead of lowering the prices.
Financing Your Business Based On Future Expectations
Borrowing loans based on expected increases in future revenue is very risky. If the business fails to increase the revenue you are likely to default repayment of loans which can lead to total collapse for the business.
Always borrow based on the current cash flow of your business. You should also consider worst case scenarios. This means that you should be able to repay the loan even when you are making losses.
Over reliance On One Source Of Cash
When starting your business you should have one specific product or service. This will give you ample time to make the product or service better. As the business grows you should add other products so that you can increase revenues.
Remember that one product may be selling now but it may become obsolete in the near future. This is evident in gadgets and other electronics.
Failing To Secure Enough Start Up Capital
Insufficient capital at the start means that you will not start. The best way to start a business is by saving. You should save enough money to fund the start up. Savings enable you to get credit easily since you need less cash to top up what you had saved.