7 Financial Mistakes to Avoid as a Produce Business
Suppose you’re thinking of starting a production business, congratulations! You’re embarking on an exciting journey that can be highly rewarding. But with any new venture, there can also be many challenges and potential pitfalls.
While there’s no surefire recipe for success, you can avoid inevitable financial mistakes to help increase your chances of making your produce business a success. For example, you can opt for technological solutions like https://usesilo.com/products/accounting that are explicitly designed for produce businesses.
In this article, we’ll go over some financial mistakes to avoid as a production business.
Not planning for seasonality
One of the biggest challenges of running a productive business is seasonality. Produce has finite growing seasons, so your revenue will likely fluctuate throughout the year without proper planning. This can make it difficult to predict your cash flow and manage your finances.
To offset this ebb and flow, plan accordingly for seasonality. This can mean setting aside money during peak season to help cover expenses during the off-season. That way, you’ll have a steady cash flow throughout the year and can avoid any financial surprises that put your business at risk.
Not diversifying income streams
It’s not a great idea to rely on just one income stream, as you could easily be put into danger should that singular avenue dry up. Diversifying your income will help insulate your business from financial shocks and ensure that it’s secure during stormy seasons.
A common mistake that produces business owners make is relying too heavily on one source of income. For example, they may only sell their products at farmers’ markets or to local restaurants. While these channels are viable, it’s important to branch out to avoid being impacted by factors out of your control, such as your trade partner’s business failing.
There are several ways to diversify your income streams. One option is to start offering additional value-added products, such as jams or pickles made from your produce. You might also sell to different markets or develop new marketing channels. The key is to have multiple sources of revenue, so you’re not putting all your eggs into one basket.
Not tracking your expenses
One of the most important things you can do as a business owner is tracked your expenses. This will help you understand where your money is going and allow you to identify areas where you can cut costs.
Yet many produce business owners don’t track their expenses properly (or at all). With how busy things can get, it’s not uncommon to throw receipts into a box and hope for the best come tax time. However, you must avoid this mistake, as it ends up causing more stress in the long run and doesn’t allow for feasible growth.
Consider setting up a simple tracking system. Some use Excel spreadsheets, though these are often prone to error, so it’s best to utilize software platforms geared toward producing businesses. You can also hire an accountant to help you manage your expenses.
Not keeping personal and business finances separate
Another mistake that produces business owners make is combining their personal and business finances. This can lead to big problems, especially if your business is sued or goes through insolvency.
To avoid this, open a separate bank account and ensure all business expenses and income are run through it. This will make it much easier to track your finances and keep everything organized.
Not getting professional help
Many produce business owners try to go at it alone regarding their finances, thinking they can save money by doing everything themselves. However, there’s a lot of room for error when dealing with business finances, which you’ll want to avoid, as dealing with the IRS can be a nightmare, and you’re likely to make mistakes that could cost you money.
It’s worth paying for professional help, whether it’s from an accountant or a bookkeeper. This will relieve the burden of dealing with the financial aspects of your business, freeing up time so you can focus on what you’re good at while leaving the time-consuming stuff to someone who knows what they’re doing.
Not saving for taxes
You’re responsible for paying your taxes when you’re self-employed or own a business. This can come as a rude awakening for many new produce business owners who don’t have the forethought to save for taxes.
To avoid surprises, set aside money each month to cover your bill when tax season comes along. This will help you stay on top of your tax obligations and avoid any penalties or interest charges.
Not creating a rainy day fund
Produce business owners often make the financial mistake of not ensuring they have enough cash to cover unexpected expenses. You may not be able to predict when a piece of equipment will break down or when sales will slow down, but you can prepare for it by having a rainy day fund.
Aim to have enough cash to cover three to six months’ expenses. This will give you a cushion to fall back on when unexpected costs arise.
Mistakes to avoid as a produce business: prevention is key
These are just a few of the most common financial mistakes that produce business owners make. Avoiding these mistakes through due diligence will help keep your finances to reduce the risk of financial problems down the road. Be sure to follow the tips discussed above. By doing so, you can keep your business on track for success.