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4 Money Mistakes Made by Businesses That Are Always Short on Funds Cash-strapped businesses that adopt transparent accounting and disciplined spending often find they have more cash than they realized.

By Andrew Cravenho Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

It is the bane of every new business (and a lot of old ones too) - the constant need to scrape together funds to make ends meet. Running a business can be very stressful. With all the myriad worries that plague your mind, not having enough money to pay your employees or creditors should not be one of them.

Assuming that you kick started your business with a clear business plan and adequate funds in hand, there can be a handful of reasons why monetary troubles still plague you. Let's explore them in a little detail.

1. Careless accounting.

To keep costs low, a lot of business owners take over non-essential functions like finance and manage their company accounts by themselves. Often, they entrust the cheapest available person who knows something about accounts with the job of managing finances. Poor move.

Your money is the oil in your wheels. It's what keeps your business running. First and foremost, separate your personal finances from those of your business. However, great be the temptation even in tough times, never skim the till .

Invest in a competent financial manager and allow them to set up a simple and transparent accounting system for you. A financial management software like FreshBooks or CloudBooks will help you keep your payments and accounts receivable in order. They will help you create invoices, send out reminders for overdue payments to your debtors, manage your payroll and pay your taxes correctly.

Most importantly, make it a point to be diligent about each income or expense by recording it in your financial software. That way, you'll always know where your money went at the end of the financial year.

Related: 4 Start-Up Accounting Tips for the Young Trep

2. Wonky resource allocation.

Not spending adequate time in drawing up an annual budget for your business means you will dip into your finances arbitrarily, every time you need to buy or sell something. This means you could be spending your working capital on making long term capital purchases and losing out on lower tax rates or rebates for capital expenses.

Create a two-tiered budget, one as a guideline for the entire year and the other a monthly version of your annual budget that takes into account everyday business realities, like less foot traffic in the your store in snowy winter months. The budget will list all anticipated expenses, such as materials, land and equipment, in the normal running of your business.

By prioritizing your purchases and skimping a little on your luxuries, you will avoid running out of money before the month is even over.

Related: Why You Should Ditch Your Annual Budget

3. Impulse buys.

Too many business owners treat themselves to unexpected and unplanned purchases for their business that can throw the entire month's budget out of gear. It could be an impromptu office redesign project or a brand new truck for deliveries.

Every budget has a "miscellaneous" or "petty cash" section meant for just these kind of situations. However, relying on these emergency allocations in your budgets to buy something that is not even part of your annual plans is a direct reason why your funds dry up before the month runs out.

Stay strictly on script and purchase only those items that you earmarked at the beginning of the year or month. This way, you will have a reserve fund for emergencies and no guilt free about raiding your business' finances.

4. Under quoting to clients

That we live in a competitive business environment is understating the obvious. Tons of new businesses try to break into a new market by offering extremely low rates to potential buyers. This is admittedly a great way to grab instant market share, but at what cost?

Too many businesses are in the red today because all they cared about was undercutting each other to win a client. Even if this strategy works in the beginning, relying solely on lowest prices is not a strategy viable for the long term. In the minds of customers, under quoting opens the door for further bargaining, or raises doubts about the quality of your products. Smart pricing strategies make for a sustainable business.

Related: The Pricing Conundrum: Figuring Out the Right Strategy For You

Andrew Cravenho

CEO of CBAC Funding

Andrew Cravenho is the CEO of CBAC, which offers invoice factoring for small businesses. As a serial entrepreneur, Andrew focuses on helping both small and midsize businesses take control of their cash flow.

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