Top 10 mistakes Small Business Owner makes in B2B which drains Cash!

1. Capacity & Loading

Small business owners do not properly understand their capacity and loading. What is the capacity to execute and how much they load the capacity? Either overdo or underdo. Underutilization leads to cash erosion and overutilization leads to burn out of people. They need to run the business in the equilibrium

2. Wrong Recruits

One of the common mistakes business owners makes is that recruiting people wrongly at the wrong time. Many Business owners work as sales executives in their business and they try to free up their time by recruiting a salesperson before a business matures and can afford a sales person. The other if the recruitment goes wrong, he ends up wasting the company’s money amounting to at least 6 months to the 1-year salary of a salesperson.

3. Don’t put all eggs in one basket

For small businesses, it looks lucrative to get the one big job they can executive. But the bitter truth is many businesses have gone extinct when they take the big job and can’t handle it in terms of execution and finance. There has to be governance in place that no jobs greater than 20% of annual turnover can be taken from one single client.

4. Buying expensive machinery

Most of the small businesses start with less capital. They think that buying machinery can add efficiency and increase the speed in the system. Hence, for buying machinery they go for a term loan or other loans. The monthly commitment becomes oblivious if they underutilize the machine. They need to ensure that the Machine is loaded at least more than 50% capacity to get the ROI. Otherwise, it drains cash from the system.

5. Storage of huge raw materials

Small businesses can’t afford to have a huge storage of raw materials. They need to arrive at the optimum stock of materials required for running their business. Any excessive materials bought and not used over a period or for the job which is canceled mid-way will also have a big impact on the cash. Any material lying over 6 months is alarming and needs action to be taken.

6. HR costs

Employees need to be monitored for what work they are doing and the manhours need to be recorded for all the jobs for the job costing. In many incidents in small businesses people present but do not contribute wasting their time and energy. Also, they delay jobs in normal hours and do it over time. Small business needs to have a monitoring mechanism to combat all these errors. A major cash drain happens through this.

7. Small Expenditure through petty cash

For small businesses, small expenses are not small anymore. Every penny to be counted and controlled where ever possible. There have to be systems and processes in place to avoid direct cash leakage in the system. “Small Drops make an ocean” is very in small businesses. Small money saved will have a huge impact on the bottom line.

8. Borrowing Loans with High Interest

Small businesses tend to borrow loans with high interest when they are under pressure to solve current problems without looking into the impact of the high interest which leads to cash drain and also adds more pressure to the system. These borrowings to be done in a calculated manner and it cannot be utilized for loss funding or to cover inefficiencies. It can be utilized only for working capital or capital expenditure. The wiser choice is to have an equity partner injected at this stage.

9. Not planning for external factors

One of the common mistakes is being overconfident. Many businesses start with projections that show cash flows for an ideal high situation. Businesses that don’t plan for the worst and are not prepared for extended periods where you won’t get business and will suffer. It’s important to remember that external factors like pandemics can hit any business. Believe in yourself but prepare for the storm. Have an emergency fund planning.

10.Scaling down at the right time

The business which can adjust to the market conditions and reduce their fat to stay lean will sustain and overcome challenges. Businesses that are overconfident and wait for the situation to get over without having to adjust their operations will lose cash and get into a cash crunch situation.

SME Leap is designed to provide tools and information which entrepreneurs and business owners need in one place to cross the growth barriers they had in taking their business to the next level. Please visit https://smeleap.com/to know more about us.

Please find below some of the Software Tools Useful for Businesses

WEBSITE TOOLS