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As a business owner, you have many different responsibilities to manage. From payroll to marketing and accounting, there are a lot of bad business decisions to be aware of. Business owners who don’t monitor their finances regularly can make costly mistakes. Unmanaged expenses can add up quickly and create a financial strain for your company.
Financial drains can put a severe damper on your business and lead to possible failure if left unchecked. But with the proper awareness, these common economic issues can be spotted early before they result in an even bigger problem. Whether it’s unpaid invoices or unnecessary spending, here are 10 bad businesses decisions you should keep an eye on:
Bad Business Decisions
A common drain that businesses should be aware of is payroll fraud. This is when employees are not paid what they are owed or are paid less than what they should be. In some cases, this can be an outright theft or embezzlement committed by those in charge of payroll. In other situations, it might be a simple misunderstanding or neglect to keep track of proper records. Employee employment fraud is also a big concern and can eat your profits and finances if you’re not careful. This can be the act of employees not clocking out after their shift or for unpaid breaks or having another employee do it for them.
Everyday payroll theft activities include:
- Ghost employees: when an employee is on the payroll but not physically working
- Timesheet fraud: when employees or management alter time sheets to pay more or less than someone is entitled to
- Sick leave fraud: when an employee is claiming to be off work ill but is gainfully employed elsewhere
- Commission fraud: when bonuses or commissions are paid incorrectly to undeserving employees
It’s essential to keep an eye on both your employees and your payroll service. If something looks off, investigate further and ensure you’re paying everyone what they’re owed.
Unsuitable Business Premises and Location
A specific drain businesses should keep an eye on is unsuitable business premises or locations. This can manifest in a few different ways. First, you could pay a higher-than-average rent or lease fee for a less-than-ideal place. The other option is paying too much for a great space your business can’t support. Any company should thoroughly analyze before signing a lease or purchasing a property to see if it’s worth the cost. The same applies to any real estate agent you might use to find a new location for your business.
You need to ensure the location and premises are suitable for your needs, and this can only be done on a per-business basis as each business’s requirements will be unique to them.
- Do you have the right size building for your needs?
- Does the building do everything you need it to?
- Do you have room to expand your premises?
- Is it in a good state of repair?
- Can suppliers and vendors access your location?
- Are employees able to get to work quickly?
It might be a case of finding a location that allows you to undertake the erection of other buildings if required. For example, as your business grows, adding additional storage or warehouses in the form of butler buildings can be advantageous, or finding a retail outlet that is in an area allowing you to increase footfall or expand into neighboring properties can help you to grow as you need to.
Poor Accounting Records
If you don’t keep accurate accounting records, it can lead to several economic issues. Hiring an outside professional to fix the problem can become costly. It isn’t easy to monitor your profit if you don’t know how much income you’re bringing in. You won’t know how much you’re spending and where it’s going. This can lead to overspending and unnecessary expenses. It also makes it harder to forecast future revenues. Without accurate figures, you can’t predict how your business will perform in the future. Poor accounting records make it difficult to report exact figures to your investors. It can make it hard to convince others to invest in your business. It can also be challenging to get financing for your business.
Repairing Outdated Or Unsuitable Equipment
Another cost drain that businesses commonly face is repairing outdated or unsuitable equipment. This could be something like a production line that needs to be updated or a computer system that isn’t functioning correctly. In some cases, you might even be using outdated technology that doesn’t work for the type of business you’re running. Whatever the issue is, it can drain your company’s resources and even lead to lost revenue if the equipment is not functioning correctly. If a large piece of equipment is constantly malfunctioning, it may be worth doing a complete repair or just replacing it and cutting your losses. This can also apply to computers and other digitized devices that are not as modern or up-to-date as they should be.
Bad Inventory Management
Another potential bad business decision is terrible inventory management. This can include not keeping track of inventory or overstocking items that don’t sell. It could also mean that you don’t have a system to track inventory that is accurate and sufficient enough to be helpful. Having incorrect or conflicting inventory numbers can lead to miscalculations in restocking and markdowns. This can result in wasted money that could have been avoided with proper inventory management. It’s essential to update inventory as often as needed to track what is selling and what is not. It’s also necessary to have a system that allows you to easily track inventory and see when you need to make a restocking order.
An efficient inventory management software can help you put processes in place that automatically monitor stock levels and adjust accordingly.
Other ways to improve this area include;
- Examining your supply chain for issues and additional costs
- Simplify your process
- Perform regular audits
- Establish product traceability
- Improve employee training
Most businesses will make marketing mistakes at some point. Marketing mistakes can be costly, especially if they’re a drain that happens more than once. Investing in the wrong marketing strategy, paying too much for a marketing campaign, or not having a solid plan to track your return on investment can create a financial drain you don’t want to deal with. Take the time to analyze your current marketing efforts and determine what isn’t working. Then, make a plan to try something new. The important part is acknowledging the mistake and learning from it.
When turnover happens more than it should in your company, it can severely drain your finances. Not only do you have to take the time to find and onboard new employees, but you also have to pay a portion of the first paycheck out to your departing employee. How much you have to pay your outgoing workers can create a significant drain on your finances.
Improving employee turnover can require an initial investment; however, putting measures in place to retain staff can have many benefits in the long term. Tips for keeping employees include;
- Thoroughly vetting new members of staff correctly before hiring them
- Creating an efficient onboarding process
- Imprint employee culture
- Offering incentives and employee benefits and perks
- Paying attention to an excellent work-home life balance
- Fostering open communication between employees and management
- Taking on board feedback and listening to suggestions
If you have debt that you have not been keeping up with, it can become a severe drain that impacts your business’s finances. Debt payments can eat up a large portion of your business’s budget. This can leave you with little flexibility and put your company at risk of missing payments. Racking up debt without a solid repayment plan can create a significant financial drain on your company. It can be even more harmful if you’re not keeping up with payments and your debt has turned into collections.
Banking fees are often overlooked as a financial drain that can negatively impact your business. Certain services, like overdraft protection or out-of-network ATM fees, can be costly and drain your business’s finances. But, depending on the size of your company, these banking fees can add up. If you’re paying these fees, it’s a good idea to see if there are better banks you can use that charge fewer fees. You may also want to consider a different payment method, like moving to an online-only system. This can help you avoid costly out-of-network ATM fees.
Impulse buys can be a drain that happens in a variety of ways. Some businesses make the mistake of purchasing new equipment or computers that are not necessary or even needed. Others may just be spending too much on supplies that are not worth the price. Whatever your impulse buys are, it’s essential to recognize them and cut back on them as much as possible. This can save you money that can be reallocated to more critical areas of your company.
Summing it up: Bad Business Decisions
These bad business decisions can negatively affect your business’s finances if they are not kept in check. Ensure you are aware of these issues and keep an eye on your finances to avoid these problems. Communicating with your employees about budgets and spending is also necessary. A balanced approach to spending and staying on top of your finances can help you avoid these common financial drains.