3 Common Mistakes Made When Handling Business Capital

Besides providing valuable services and products, proper financial management is among the most important aspects of a successful business.

There are several common mistakes businesses make in their capital budgeting that could easily be avoided. Here are a few common mistakes that could trip up your business.

Stacking on Loans

Some business owners are tempted to accept multiple working capital loans from different lenders at the same time. Taking out multiple business loans and being unable to pay them all on time can prevent the business owner from qualifying for a bank loan and other financing in the future. More importantly, every loan you have out equals more monthly revenue that is tied up in remittances.

When selecting a business loan or other financing options, knowing which type you need and in what amount is important. You must be confident that a boost in funds now will ultimately mean greater revenue along with business capital.

Leasing vs. Buying

Another mistake business owners make is when it comes to the managing of their business capital investments for the acquisition of equipment and other hard assets. Do you lease or buy equipment? Buying may not be a viable option if you don’t have a large cash reserve. The initial outlay may be so much that your business may have to find lines of credit or part with a huge sum to acquire the equipment it needs.

With leasing, you will have a pre-determined monthly repayment which can help you budget more effectively. But if your equipment needs are relatively small and you have the cash or can get a low-interest loan, then you can go ahead and buy. It can help save some money over the long term if you can afford it. Also, when determining the costs of either leasing or buying, make sure to include other considerations like tax deductions and equipment obsolescence.

Which is Better for Your Business: Buying or Leasing? Let Us Show You!

Expanding Too Soon

Some expanding businesses hire too many people too soon or acquire unnecessary office space without having a reserve fund that is sufficient to see them through the tough times. Growing your business may seem like the path to success, but it can easily consume the established cash flow and bleed the company dry if not done correctly. Rapid growth will increase the cost of doing business, and you need to be prepared and ensure that your monthly expenses don’t exceed your operating credit.

The Bottom Line

Recognizing and overcoming common pitfalls associated with managing business capital is essential if you want your business to continue to grow. Analyze your available business capital thoroughly before making any large to decisions to ensure that it won’t be interrupted during new acquisition or expansion efforts.