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Debtor Finance, Small Business Advice & Solutions

Which financing mistakes do small businesses need to avoid?

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For small businesses, financing is among one of the most pressing concerns. No matter what industry they are working in, cash flow can be a major issue that threatens the viability of even the most innovative business ideas.

Fortunately, these mistakes are often easy to avoid especially if small businesses are aware of them ahead of time. So, if forewarned is forearmed, here are three of the most common financing mistakes that companies can make.

1) Forgetting their core product

Every business will need to expand at some point if it wants to keep growing. However, this expansion needs to be done in the right way - otherwise companies are putting their long-term financial success in jeopardy.

Instead, companies need to be sure they are sticking to their knitting and not straying too far from the core, profitable part of their business. This means having a growth strategy that expands on a business's core offering, rather than embarking on unrelated initiatives.

2) Relying on one major customer

Often, it only takes one big order to boost your business's bottom line and turn your company from struggling start-up to profitable enterprise. However, there are also issues that arise with relying too heavily on one customer. Should the company's financial position change or if invoices go unfilled, then your business will be compromised.

While there is no easy solution to this issue, companies that don't rest on their laurels and actively seek a diverse range of customers will be in the strongest position moving forwards. While this involves ongoing investment in marketing and client retention, companies that want a robust client base and cash flow will need to take this process seriously.

3) Failing to account for contractual obligations

Many small businesses will run into trouble when they claim for work they have completed, only to find the work they have been contracted for did not include certain financial outlays or other responsibilities.

For small-business owners, understanding exactly how to navigate these responsibilities is essential - especially if they want to avoid larger issues further down the track. By conducting their own research and covering all their bases before signing on the dotted line, companies will be able to avoid this significant pitfall.

Although these three represent some of the most serious financing challenges that organisations can face, by planning ahead and investing in the right processes companies can avoid the large majority.