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3 Financial Mistakes That Lead to Bankruptcy

Financial mistakes are something that haunts a huge number of entrepreneurs and companies. They can be completely different. From cases when SMM managers buy Instagram followers but do not make efforts to develop an account to moments when a company goes bankrupt due to the wrong step of marketers. In this article, we will talk about financial mistakes and their causes.

Cause of all mistakes: “This business is my life’s work”

There is a type of entrepreneurs who can be called dreamers. For them, business is to some extent a child:

  • gets the best right now;
  • forces you to make decisions based on emotions, even if in the long run it is unreasonable;
  • seems better than it really is.

This entrepreneur thinks not in numbers, but in mission. He underestimates the risks. As a result, a short but bright success story happens: opened, rejoiced, crashed into difficulties, closed.

Because of such a frivolous attitude to business, financial mistakes are made. For example, if a novice blogger wants to make his account the most popular in the world, then he can buy real Instagram followers several times, but this will not help him because he does not try to create high-quality content.

Mistake #1. Personal Finance = Corporate Finance

A novice entrepreneur usually has one wallet for himself and for business. He is inextricably linked with his child.

As a result, if a person works in the service sector and receives payment on his card, the illusion of a large income may arise. He believes that business income is personal profit and thinks that he has earned so much. The next month comes, and he has to pay for the work of partners from his own money. It happens that they are already spent. This leads executives to credit and debt.

If you do not keep separate records of corporate finance, it is almost impossible to assess the real profitability of the business.

Mistake #2. The business does not have a reserve fund

A reserve fund is needed to get through difficult times. This mistake has been felt by many companies during the pandemic.

We recommend having an emergency fund. It is better to keep it on deposits or accounts from which you can withdraw money at any time.

If there is no reserve fund, not only you will suffer. Your employees will be left without work, partners and customers without goods and services, as a result of which they and their families will suffer.

Mistake #3. Invest only in your business

Firstly, entrepreneurs think like this: “Why would I invest money somewhere else if I have my own investment project here?”.

Secondly, they often reason like this: “Why invest money at 10-15% per year if my business will grow several times in the future? I will earn much more on it!”.

The answer to both questions is simple: to diversify. So your risks will be less. Investing in your business is like buying shares in it. Think about what will feel better in the event of a crisis: your small business or a large company? As long as you are doing well, you do not want to think about the risks. But when the crisis comes, it will be too late.

The business may close. Make sure you can start over

The most frustrating thing is when you make all these mistakes and close the business. After this experience, I don’t want to try again. But the second time around, things can be different!

The main thing is to draw conclusions and move on.

We wish you to have a dream, but look at the numbers. And we wish your business a stable development!

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