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Many business owners make the mistake of believing that not paying bills on time is the natural way to run their business says outsourced CFO. However, this is a very dangerous way of running a business that can end up causing an entrepreneur to eventually when out of money in their business. In fact, it is so beneficial for entrepreneurs to learn how to pay their bills on time, that they can literally become successful because of this practice.
One of the first things that business owners need to learn as a new entrepreneur according to outsourced CFO, is that if there in the habit of paying their bills on time every month, they will be able to very easily learn if their business is profiting or not. Perhaps they need to raise their prices in order to have a greater margin, perhaps they will need to generate more sales, or perhaps they need to cut their expenses. However, without paying their bills on time every month, a business owner will not know the answers to these questions.
Many business owners believe that even if they cannot pay their bills on time every month, those problems are going to go away when they scale their business up. However, outsourced CFO says that this is not the case, because if the business is not able to pay a lawyer bills while they are small, when they scale up their business, there simply going to scale up the problems, and have a larger, still unprofitable business.
The next thing that business owners need to understand, is that if they are not able to pay their bills on time, one of the problems is often an unsustainable overhead. Outsourced CFO says again, this is going to be very impossible for business owner to understand if they pay their bills late every month. However, when a business owner is able to pay all of their bills on time, if they start having unsustainable overhead, it will become very obvious on which bills are the hardest to pay. Then, they can make the difficult decision of what they have to do in their business, which is cutting some of the unsustainable overhead.
Business owners often do not want to do anything about their unsustainable overhead, because that typically means they have to lay someone off. The reason why is because overhead is typically things like utility bills, phones and Internet, office applies, bank charges, rent and administrative staff. Business owners typically understand that almost all of those bills are not going to affect their bottom line very much, and the two largest costs of overhead they will ever have are rent and administrative staff. Business owners cannot affect changes to rent typically, because they are locked into a lease. Meaning that one of the only courses of action they have when they have sustainable overhead is laying someone off.
However, outsourced CFO says that business owners need to realize that although they do not want to let any of their staff down, laying off one person means that they can ensure a profitable business, so that they can have the rest of their staff continue to work. Ultimately, that is going to be more beneficial to the majority of the people.
Many business owners may not realize that paying bills on time will actually effect their ability to be profitable says outsourced CFO. But the reasoning behind this is, when business owners get into the habit of paying all of their bills on time every month, if they start seeing that they are not able to do that, they have the time to affect changes in their business, and either increase the cost of their product so that they can increase their margins, or perhaps they will have to generate more sales, or perhaps they need to cut expenses. However, business owners will not know what they should do to be more profitable in their business, if they delay paying their bills on time.
Not only is avoiding paying bills on time not going to help an entrepreneur learn how to be profitable in their business, but it actually becomes a risky endeavour. For example, entrepreneurs who are not able to pay their bills on a monthly basis, or compounding the problem month-to-month. Every month they are not able to pay their bills, the bills pile up even more in the following months. Eventually, it is going to be very difficult if not impossible to eventually pay all of the bills when they pile up to a certain amount. Outsourced CFO says that business owners who find themselves in this position, are often putting themselves in a more difficult position then brand-new entrepreneurs were starting business for the first time. In fact, 29% of all businesses fail due to running out of money, and this is often how it happens.
It is also important for business owners to realize that if they get into the habit of not paying their bills, they will eventually find it difficult to make payments on several things including taxes. Outsourced CFO says that failing to pay taxes and specifically payroll remittances is especially bad for entrepreneurs, because the penalties are so severe. In fact, Canada revenue agency literally has the ability to go into business owners bank account and take the money that they are owed. Or, they can simply freeze the bank account. They are less in expecting money when it comes to taxes, and they expected immediately, with high penalties. Therefore, business owners will make a bad situation much worse if they are not able to pay their taxes on time.
Therefore, business owners need to realize that getting into the habit of paying their business bills on time will ensure that they can be profitable, and help them avoid the situation of falling behind on bills so much that they are no longer a sustainable business. When entrepreneurs are learning how to be successful, they should get into this habit early on.
