Common mistakes to avoid when starting a business

Poor stock control and over-investment in fixed assets can mean your capital is tied up unnecessarily.

Poor stock control

Efficient stock control (inventory management) will mean you have the right amount of stock in the right place at the right time. It ensures that capital is not tied up unnecessarily, and protects production when there are problems with the supply chain.

You need to put systems in place to keep close track of stock levels and values. Taking control will allow you to free up cash, while also having the right amount of stock on hand to avoid stockouts or overstocking.

There are a number of ways you can approach stock control. You can:

• re-order when stock reaches a reorder point or minimum stock level
• carry out regular stock reviews
• use just in time (JIT) delivery to avoid excessive stock build-up and reduce carrying costs

See stock control and inventory.

Over-investing in fixed assets

In the early years of your new business, you need to limit drawing on your cash reserves unnecessarily. Over-investment in fixed assets, such as office furniture or computer equipment, can strain your capital expenditure. Acquiring fixed assets outright gives you ownership straight away, but you have to pay for the full cost upfront, which drains cash.

The alternatives include:

• Leasing assets - this allows you to spread payments in regular instalments over a fixed period, freeing up cash. Leasing may also offer equipment upgrades without the need to buy new models.
• Hire purchase - you own the asset at the end of the payment process, unlike leasing.
• Buying second hand - for office furniture, fittings, etc. You can find second-hand furniture in a number of places. For example, check your local press and local auctions.

See decide whether to lease or buy assets.