{"id":34040,"date":"2018-03-23T10:24:17","date_gmt":"2018-03-23T10:24:17","guid":{"rendered":"http:\/\/icloud.pe\/blog\/?guid=ee7a44ca228d199ff62fd14d57bdf54f"},"modified":"2018-03-23T10:24:17","modified_gmt":"2018-03-23T10:24:17","slug":"the-one-money-mistake-all-bad-businesses-make","status":"publish","type":"post","link":"https:\/\/icloud.pe\/blog\/the-one-money-mistake-all-bad-businesses-make\/","title":{"rendered":"The one money mistake all bad businesses make…"},"content":{"rendered":"


\n Nik Rawlinson<\/a><\/span>
\n <\/span><\/p>\n

\n
\n
23 Mar, 2018<\/span><\/div>\n<\/p><\/div>\n<\/div>\n

\n<\/a><\/p>\n

\n

What\u2019s the one money mistake every failing business makes? It\u2019s not setting the wrong price or paying its staff too little: it\u2019s a failure to understand the various types of debt and debits passing through its books from day one.<\/p>\n

When you\u2019re starting out, getting a fix on your accounts is no small task. Well-funded startups hire full-time accountants, but that\u2019s rarely an option for the\u00a05.4 million British businesses employing fewer than nine staff<\/a>. For them, choosing appropriate software is the best way to go.<\/span><\/p>\n

But where do you start?<\/p>\n

A profit \u2013 or loss \u2013 analysis<\/span><\/h3>\n

Few companies last long if they\u2019re not turning a profit, but that\u2019s not the whole story. To work out whether your business is viable, you need to separate your fixed and variable costs, the latter of which have a greater impact on your chance of success.<\/p>\n

Variable costs, which include postage, tax and manufacturing, increase with every sale. Subtract them from your sale price, then divide your fixed costs by the result to discover how many sales it will take to turn your first profit.<\/p>\n

A business with fixed costs (rent, utilities and wages) of \u00a352,500, selling \u00a38.99 books that cost \u00a34.82 to print and post, would need to ship 12,590 copies to break even:<\/p>\n

\u00a352,500 \/ (\u00a38.99 – \u00a34.82) = 12,590<\/span><\/p>\n

If the market won\u2019t support those sales, the business will need to re-price, cut costs or find a new venture. No amount of playing with its accounts will change that.<\/span><\/p>\n

\u201cWe can only support a business in\u00a0<\/span>doing<\/span>\u00a0business,\u201d says Chris Wade, VP of product for accountancy software firm Sage. \u201cIf a company makes poor choices about what it wants to do or how to go to market, the best solution in the world can\u2019t support them.\u201d<\/span><\/p>\n

This is where the likes of\u00a0<\/span>Sage Accounting<\/a>\u00a0and\u00a0<\/span>Sage Financials<\/a>\u00a0software comes in. These programs are designed to help the business spot where the pain points lie, and identify whether they really are problems at all.<\/span><\/p>\n

\n

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\n

Speculate to accumulate<\/span><\/h3>\n

Tesla\u00a0lost more than\u00a0<\/span>$4,000 on every car it sold<\/a>\u00a0a couple of years ago, but with\u00a0<\/span>$4 billion cash on hand<\/a>, it could keep the production line running. How has it done since then? At first glance, not well. Despite selling\u00a0<\/span>just over 100,000 units in 2017<\/a>, its\u00a0<\/span>latest SEC filing<\/a>\u00a0showed that its revenues of $11.8 billion delivered a net loss of $2.2 billion.<\/span><\/p>\n

Divide that by the number of cars it\u2019s sold, and the losses appear to have widened \u2013 to $22,000 apiece. So if things aren\u2019t improving, why hasn\u2019t Musk shut Tesla down to focus on\u00a0<\/span>flamethrowers<\/a>\u00a0full-time?<\/span><\/p>\n

The answer is that Tesla is about more than just cars, and if you only look at the headline figures you won\u2019t see the whole picture. These figures include one-time costs, such as air-freighting hardware to Jamestown, South Australia, to build Tesla\u2019s\u00a0<\/span>100MW battery array<\/a>. The array will feed money back into the company over the longer term, financing its ongoing research and vehicle production.<\/span><\/p>\n

It\u2019s easy to forget that Tesla, founded in 2003, is still a relative startup beside Ford (1903) and Mercedes-Benz (1926), making this the perfect example of a company taking early losses for the sake of longer-term success.<\/span><\/p>\n

Sales are only for show<\/span><\/h3>\n

It\u2019s tempting to follow Tesla\u2019s lead, keeping prices comparatively low in the hope of generating buzz \u2013 but this is a dangerous game. Paper-thin profits don\u2019t leave room for error and don\u2019t build in contingency. Growing your sales feels good, but unless you\u2019re doing it for the right reasons, the figures alone are meaningless.<\/span><\/p>\n

IBM\u2019s second president, Thomas Watson, is often misquoted as saying there was a global market for \u201cabout five computers\u201d. He was actually talking about the\u00a0<\/span>701 Electronic Data Processing Machine<\/a>, rather than computers in general, but the point remains that even on so few sales (it actually took orders for 18), it still made sense for IBM to invest in research and production.<\/span><\/p>\n

There\u2019s no magic bullet for formulating a sales plan, choosing the right price and attracting customers \u2013 and although software can help you monitor what\u2019s happening in your business, it has to be used alongside your business sense.<\/span><\/p>\n

\u201cHaving a system in place gives you that intrinsic visibility into the underlying performance, so you know where the money has gone, where it\u2019s coming from, who your customers are and who owes you money,\u201d says Wade. \u201cAll of that means you\u2019re no longer relying on the most unreliable thing: the human brain.\u201d<\/span><\/p>\n

Profiting from proof<\/span><\/h3>\n

If you\u2019ve cut your costs as far as you can, and can\u2019t sustain losses for as long as Tesla, what next? Raising additional capital is one option, but it\u2019s only open to businesses that can prove they can pay it back.<\/span><\/p>\n

Tracking your accounts from day one \u2013\u00a0in software that was designed for the job \u2013 gives you an overview of your business performance and lets you project into the future. Both are crucial when pitching for additional funding and deciding how to spend it.<\/span><\/p>\n

\u201cYou can make better decisions more quickly,\u201d says Wade. \u201cWe hear about access to capital being a limiting factor to small businesses, but it\u2019s much easier to secure funding if you\u2019ve got a system that helps a financier understand the health of your business at the push of a button.\u201d<\/span><\/p>\n

Having this information to hand, in Wade\u2019s words, \u201clets the owner worry about\u00a0<\/span>doing<\/span>\u00a0business, rather than\u00a0<\/span>managing<\/span>\u00a0a business\u201d.<\/span><\/p>\n

The one money mistake all failing businesses make<\/span><\/h3>\n

If all failing businesses have one thing in common, it\u2019s not necessarily that they\u2019re spending more than they\u2019re making. As we said at the outset, it\u2019s a failure to understand the implications of the various debts and debits that pass through its books. If they don\u2019t have the tools they need to identify that imbalance \u2013\u00a0and understand what it means \u2013\u00a0it can quickly become an issue.<\/span><\/p>\n

\u201cIt might not be the most fundamental mistake that an entrepreneur makes, but failing to prepare for a future where they need to know these things is preparing to fail for that future,\u201d says Wade. \u201cSystems give a business longevity \u2013 and the confidence it needs to take things forward.\u201d<\/span>\u00a0<\/p>\n

Take our survey for your chance to win \u00a3100 Amazon vouchers<\/em><\/strong><\/a><\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

Nik Rawlinson<\/p>\n

23 Mar, 2018 <\/p>\n

What\u2019s the one money mistake every failing business makes? It\u2019s not setting the wrong price or paying its staff too little: it\u2019s a failure to understand the various types of debt and debits pas…<\/p>\n","protected":false},"author":418,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-34040","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/posts\/34040","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/users\/418"}],"replies":[{"embeddable":true,"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/comments?post=34040"}],"version-history":[{"count":3,"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/posts\/34040\/revisions"}],"predecessor-version":[{"id":34236,"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/posts\/34040\/revisions\/34236"}],"wp:attachment":[{"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/media?parent=34040"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/categories?post=34040"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/icloud.pe\/blog\/wp-json\/wp\/v2\/tags?post=34040"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}