3 Common Financial Mistakes & How to Avoid Them
Most entrepreneurs are visionaries with big ideas. Oftentimes, they are most comfortable focusing on the creative development side of the business and can feel bogged down by all the numbers. The problem is: you can’t make educated decisions about your your business if you don’t understand, or have a grasp on, what is happening financially.
I sat down with Trey Fulmer, the owner of LUCA, to talk about some of the most common mistakes small business owners make and how to overcome them.
First, meet Trey!
Trey Fulmer is the CEO and Founder of LUCA. He is a Certified Public Accountant with over 12 years of experience advising organizations on their accounting and financial operations. Trey founded LUCA after seeing how much value tech-savvy accounting could bring to business growth. He is now joined by a team of operational accountants, financial experts, and back-office gurus that help bring a responsive, comprehensive, and efficient accounting function to growing businesses. The LUCA team is shaped by a love for small businesses and a passion to help them build robust, scalable operations.
how to avoid
The 3 Most Common Financial Mistakes
Mistake 1 || Judging the Performance of Your Business Based on the Dollars in Your Bank Account
What is the most commonly used metric for small business owners? The bank account balance. While your bank account balance can be used as a sound measurement, when you rely solely on what’s sitting in your account, you are missing so many other pieces of the puzzle. This is a common mistake seen with both sophisticated and unsophisticated business owners.
The answer: develop your financial awareness beyond your bank account balance.
The biggest disconnect for retailers is assuming your accountant is handling all the financials so you don’t need to do anything. Retail is unique in that a lot—if not most—of your “cash” is sitting in the shop as product. Establishing proper inventory control systems and using reports to regularly track sales will allow you to provide your accountant with more accurate data. So, educate yourself!
There is ownership in being an owner. Don’t understand how a balance sheet works? Read some articles or ask your accountant. Need help figuring out how to manage an inventory process for your store? Start with the basics and grow from there. The relationship with your accounting advisor should be a partnership. As the owner you bring extremely valuable data to the table, and financial awareness gives you peace of mind and allows you to partner with your accountant to make more educated decisions to grow your business.
Mistake 2 || Not Understanding the Financial Model of Your Business
In other words, not understanding what it takes to get your business up and running and then how to keep it running. This is where a business plan can be extremely useful, and it doesn’t have to be overly complicated. Start simple with a one page business plan.
A 1-3 page business plan is more than sufficient and will allow you to better understand a few key factors: the drivers of cost and revenue, what your overhead and break-even points are, and estimating the “learning curve” once you launch your shop. Most businesses won’t turn a profit for the first six months and sometimes up to a few years depending on your business model and how aggressive you try to grow.
When you have a plan in place, you can gain clarity around the best ways to scale your business and make smarter decisions with how to spend your money.
Mistake 3 || Not Having the Right Support Team
Going into business for yourself can be a very emotional and turbulent endeavor. Having “the right people” to support you along the way will help you hone in on your vision and ensure you are maximizing your resources. Resources being: time, money, your team, energy, and mental capacity. And as a small business owner, you know well those resources can be limited at times.
It’s so important to select the right mentor, advisor, or consultant to help guide you. You want to partner with bankers, accountants, and consultants who will tell you what you need to hear, not what you want to hear. Simplify the process by doing preliminary research to choose the best people for you and your shop.
Know your numbers! A few ideas: sales per square foot, conversion rate, sell-through rate, inventory turnover rate, gross profit, revenue per employee.
Establish effective systems to track sales and inventory.
Understand what reports you should be running and create a consistent schedule to run them.
Ensure you have the right support team.
Huge thank you to Trey for sharing these tips with us! If you want to learn more about Trey and the financial services LUCA offers, you can find out more here.
Managing inventory, sales, and cash flow are some of the most stressful parts of running a shop. Every client I work with encounters this at some point, so know you aren’t alone if you’re currently feeling it in your own business. If you’re feeling like you need some guidance with setting up more effective tools for monitoring your sales and inventory, let’s chat!