Financial mistakes are one of the biggest killers of small businesses. When you’re doing everything on a shoestring budget, your finances must be as well kept as every other part of your business. Failure to take your finances seriously could lead to a serious cash drought and that’s when the real problems start to rear their ugly heads.
Take a look at these 5 common financial mistakes made by small businesses and make sure you don’t get caught out.
Inadequate Cash Reserves
Many people don’t realise just how much money it actually takes to start your own business. Whilst most have the financial basics down, there are always some who forget to plan for those unexpected surprises – like your business not taking off as soon as you start up.
To make sure you aren’t one of those people, always save up more money than you need and budget accordingly. If you don’t have any unexpected financial mishaps then great, keep that money safe for a rainy day but if you do, you can have peace of mind that it’s covered.
Everyone hates accounting but it’s important for a reason – well, several actually. Accounting isn’t just there to make sure the tax office gets their fair share of your profits. It’s seriously important if you want to make sure you pay your bills on time and that you are getting your payments when they’re due. It can also help you to see where you’re spending too much money and where you could afford to spend a little more.
If you really hate the time and effort accounting takes, you can look for help with it. Whilst it’s not advisable for most small businesses to hire an accountant (they can be super expensive), you can make use of online accounting software.
This will help you to manage your accounts quickly all from one place, gives you a good overview of your payments, offers real time support from accounting experts and costs a fraction of what you would pay for an actual accountant.
Neglecting Business Credit
Everyone knows you need good personal credit to even be considered for business credit but that doesn’t mean you can neglect it once it’s yours. No matter how good your personal credit is, if your business credit is bad, you’re going to struggle.
You absolutely must separate your business and personal credit as soon as possible and if you can, get registered with a business credit bureau. It also really helps if you remember to pay your bills on time, so set yourself a reminder.
Paying Out For Non-Essentials
Just because you think you have the money for that expensive desk, doesn’t mean you should buy it. It might not seem fair but when you’re running a small business, all luxuries have to be put to one side. The most important task you have is to keep your business running whilst you try to expand and you can’t do that if you don’t have any money.
The benefits of a lean business are immeasurable during the early stages of running it and future you will certainly thank you for all the scrimping and saving you’re doing right now.
Not Planning For Tax Bills
Unlike those under regular employment, business owners don’t have the luxury of their taxes automatically coming out each month. For some, this can cause issues, as they find it hard to put money aside for big tax hits. However, no matter what financial situation you’re in right now, don’t be tempted to dig into your tax savings.
By paying attention to what taxes you have to pay and not burying your head in the sand, you can ensure that you have enough money to cover your tax bills each year. Alongside this, by learning more about taxes, you could significantly reduce your tax bill by taking steps to legally reduce what you owe. Take the time to research what things are exempt from taxation (such as business expenses), to improve your tax bills.
A healthy cash flow is the key thing keeping your business running, so don’t jeopardise that by making these silly mistakes.