First-time owners often mismanage money.

Entrepreneurs have a lot on their plates. They have to navigate ever-changing markets, product launches, inventory, staff, and so much more. But, managing all of these things is no easy feat. This juggling act is often the reason why so many first-time owners fail.

In fact, according to the SBA (Small Business Administration), approximately 44% of small businesses fail in the first two years, with nearly 50% going under in the first five. At A.P Accounting & Tax Services, we see first-hand just how rough it can be for owners.

That’s why we’ve compiled a list of the three most common reasons companies run out of money and how to avoid it below.

Poor Management

A common reason why companies go bankrupt is due to poor management. Oftentimes, new owners are reluctant to hire help and rely solely on themselves to manage the day-to-day operations. But being the only senior-level person at a company has its downsides. That’s because it typically causes owners to overlook things.

When this happens, it tends to lead to mismanagement of finances as owners simply don’t have time to focus. But, hiring help can offload menial tasks onto a manager. That way, owners can refocus their efforts on growing the business.

 

Lack of Funds

 

First-time owners are usually aware of how much money they need to run the company on a daily basis. However, they often lack insight or knowledge on how much they earn in revenue from product or service sales.

This disconnect in planning causes small businesses to halt operations when the money runs out. We usually see this happen when owners fail to adequately price their products or services and end up cutting them so much that they actually lose money in the end.

This is especially true in more competitive markets that are saturated with other companies offering similar things. So, owners should be aware of their financial status and keep an eye on their revenue to prevent this loss.

 

Lack of Marketing

 

Owners will never pull in customers if people do not know who they are. That’s why marketing is so important. Marketing is needed to reach new clients and remind old ones to come back.

But many first-time owners fail in their marketing attempts by overspending on poor campaigns. Ideally, owners want to prepare a marketing tactic that has a high prospect reach and conversion ratio. To get this done, owners will need to first determine who their target audience is. Once this is established, it is much easier to determine how they can be reached (for example on social media, through television ads, email blasts, etc.).

Only then should owners investigate and invest in the most cost-effective (yet successful) campaign. Of course, these campaigns will need to be monitored regularly. Otherwise, owners might be dumping money into ineffective ads that are failing to bring in clients.

Ultimately, business owners are busy people. Although they try to balance it all on their own it can be impossible. That’s why we recommend getting help from an accountant or financial planner, like us. We offer valuable resources to help with business decisions and planning.

That way, owners can get back to focusing on the thing that matters: growing a successful business.

 

Otherwise, without a trusted financial partner to look out for you, you might struggle to manage your books on your own. In turn, resulting in higher costs, lost money, more stress, wasted time, and potential risk of bankruptcy.

So, if you’re a business owner and want to prevent this from happening to you, give us a call at 407-328-5001

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