Even with the influx of innovative ways to start a business, not every business will succeed. While every business starts with passion, scaling comes down to one thing: proper financial management. If you’ve been thinking about opening your business, here are five financial mistakes you need to avoid when launching a business.
Getting business off the ground is an investment. So, even if you’re going to be selling exclusively online, you need the right tools to get started launching a business. It’s not uncommon for new business owners to go overboard when setting up shop.
From buying a new computer to investing in inventory, things can add up quickly. Unfortunately, without a return on investment, you can go under before you even get started launching a business. This is why learning how to invest in your own business successfully is key. Only buy the absolute necessities to get your business operational. Once you start seeing a profit, then you can make necessary upgrades.
Not Opening a Business Account
Even before you see a profit, you need to open a business account. As tempting as it might be to use your personal account, you should never mix your personal and business finances. If you open a delivery company and manage a fleet of vans, if one of your drivers is involved in an accident and you’re sued, they could garnish your personal account.
As a business owner, it’s important to take the appropriate measures to have adequate insurance, as well as install safety devices, like dash cams, to protect your employees. An online guide can cover everything you need to know about safety and choosing the best dash cams for a fleet within your business.
Not Having an Emergency Fund
Not saving for an emergency is another common mistake new business owners make. Even though the purpose of a business is to make more money, you still need something to fall back on. A good rule of thumb is three to six months of monthly expenses set aside.
Not Sticking to a Budget
Not sticking to your budget is just as dangerous as not creating one at all. You need to account for every cent you spend, especially after opening for business. Take the time to create budgets for present day and in yearly increments.
Although the figures will probably change, you’ll still have a clear picture of how much money you have to spend. This will help you through the stages of growth in terms of being able to determine when you can, and cannot, afford to expand.
Not Preparing for Taxes
Just like your personal taxes, you need to plan for your business tax obligations. As a business owner, you’re responsible for filing unit taxes. Even if you have a certified accountant to do your taxes, you still need to keep track of your business expenses and receipts.
If you plan on filing on your own, it’s better to file every quarter than only once a year. In many cases, this prevents you from being slammed with a tax debt you can’t pay.
When used properly, company credit cards can be a godsend. However, if you find yourself relying on credit to finance your business, you could be setting yourself up for trouble. When possible, pay in cash to offset credit card debt.
Financial forecasting is the best way to avoid getting too swipe-happy. Make sure that you plan ahead for any purchases, big or small. Whenever you can pay with cash, pull from your business’s account rather than your own pocket. Separating your finances is a good way to keep budgets balanced and avoid debt.