There are a lot of mistakes that entrepreneurs are bound to make as they start and grow their businesses. You might spend money on advertising that doesn’t work. (Hate to admit it, but we’ve done that. More than once.) Or you might hire an employee who doesn’t work out so well. (Guilty again.) Or spend time developing a new product your customers don’t really want. (Yeah, we’ve even done that.) With a little luck, you can survive all of these mistakes.
The worst possible mistake your startup can make
So what’s the worst mistake you can make as a small business owner?
Acting like a bank.
Your customers will love it. But it could kill your business.
Bill collecting stinks. Asking for money makes you uncomfortable. It makes your customers uncomfortable. But you have to be paid. The sooner the better.
Too many small business owners try to do the “nice” thing. When a customer falls behind in payments, they extend the credit deadlines, thinking they just need a little more time. And customers appreciate a company that acts nice. They’re good for it, right?
Be careful. This might work out, but it could result in a default. And the longer you let it go on, the more painful it can be—for you and your business. If your customer’s payment troubles are bad enough that they declare bankruptcy, you may never collect. Can your business sustain the loss?
How do you avoid being a bank to your customers?
- Establish payment terms up front. Payments due 30 days or less after service is rendered is standard. 20 days is even better. And collecting payment when service is rendered is best of all.
- If you don’t collect payment at the time of service, bill your customers quickly. And follow up to make sure that invoices were received and payment is on the way. As a small business owner, you may not have the systems in place to create an invoice as soon as service is rendered. But since you work to get paid, this is one of your most important responsibilities.
- Work with your own vendors to extend payment terms. (Given the advice above, this may be a little hypocritical, but you are trying to maximize your cash flow, not win an award for payment term consistency.) Longer payment terms with vendors will help ensure you’ve collected from your customers before you have to pay your vendors.
- Get a line of credit or a company credit card. There are some purchases (that you have planned for and can afford) that have to be made. Using a line of credit for these can help free up cash flow in the short term. Just make sure you will have the funds on hand when the payment comes due. Borrowing more than you can repay is a sure route to insolvency.
Avoid this mistake at all costs. You’re not a bank. Don’t let your customers treat you like one. What you can do is ensure you have a professional-looking logo design to match your professional business plan. Try our Logo Maker today and create a business logo.