A small business owner has to take on a number of roles, but of all the tasks you have to handle each and every day, managing your business’s finances is up there with the most difficult. While money might not make you happy, it does make the business world go around, and, as such, lack of cash can cause some huge problems within a company. In fact, it’s the main reason why most small businesses fail. For this reason, as difficult and tedious as it may be, it’s crucial that you manage your funds well. To make this task a little easier to handle, here are a number of common financial mistakes you need to avoid.
1. Mixing Business With Personal
Keeping all of your money in the same place may seem convenient at first, but it’s actually a huge mistake. The reason for this is that your business funds aren’t actually yours, whether you’re the sole owner or not. Instead, they belong to your company and should be used to pay salaries, vendors, and any other business expenses. If you keep your personal money mixed in with this cash, then you could spend more than you have, leaving your company short. You’ll also be left with a headache when tax season rolls around, so it’s much easier to open a separate account.
2. Borrowing Too Much Cash
Although it is possible to build a business without any money whatsoever, it is incredibly difficult, and depends entirely on the type of company you want to create. Because of this, most entrepreneurs require a substantial amount of funding to get their ideas off the ground. If you don’t have this money in your savings, then you may be tempted to borrow from loved ones, the bank, or another lender. Just make sure that you’re sensible when you do this. After all, you’ll have to pay the money back at some point, and if you can’t, you’ll end up in a lot of trouble.
3. Overlooking The Hidden Costs
That being said, borrowing too little money can also cause major issues, as it leaves you without the cash you need to finish everything you’ve started. Unfortunately, with the vast number of hidden costs associated with running a small business, running out of money is incredibly easy to do. To avoid this, you need to make sure that you know and account for any potential hidden costs you may face, such as travel expenses and payroll taxes. You should also try to find ways to prevent your business from having to pay these extra costs.
4. Working Without A Budget
Running a business without a clear budget is almost always going to lead to its failure, regardless of whether you’re in charge of a brick and mortar store, ecommerce company, or anything between. Many entrepreneurs see a budget as a limitation, while others view it as a complete waste of time. However, it is actually a huge asset. Without your budget, you’ll likely end up spending much more than you need to which will inevitably land you in a financial pitfall. For this reason, you need to plan and monitor yours carefully, updating it when you need to.
5. Paying Your Bills Late
From rent to loan payments, your business has a lot of bills it needs to pay each and every month. Keeping track of each of these bills won’t be an easy job, but it’s one that needs to be done. If you were to forget about just one of your payments, you could be left with a late payment fee that completely ruins your monthly budget. If you were to do this several times a year, it would cause some major problems and cost you a lot of money. For this reason, you may want to set aside a day or week each month to handle any payments you need to make for this time.
6. Neglecting Your Emergency Fund
Forgetting to pay a bill or two is one of the many disasters your business may face in its time. Others include equipment failure, natural disasters, and lawsuits. While none of these situations are ideal, you can make each of them less stressful and expensive by putting some money aside now. By building your business emergency fund, you can save yourself from having to borrow cash when things go wrong. This means you won’t have any interest to deal with and won’t have to put your company in debt to get back on track.
7. Not Getting Sufficient Cover
An emergency fund is vital and can be incredibly useful, but simply having one available doesn’t mean that you can operate without sufficient insurance. There are a number of different types of cover available, some of which will be useful to you and many of which won’t. Regardless, you need to ensure that you’re protected as much as you can be. This way, in the event of a disaster or emergency, you can limit your losses and the amount of money you need to borrow from your savings. Make sure you check with a professional to find the best policy for your situation.
8. Hiring Too Many Employees
You may have started as a one-person show, but at some point, you are going to need some help. Of course, you should always begin by outsourcing the less important work to freelancers and agencies, but there are going to be certain tasks that are best left to permanent members of staff. However, that doesn’t mean that you need to go ahead and hire an entire team right away. Recruiting and retaining staff is an expensive process, which is why you need to ensure that you only employ people that you absolutely need.
9. Making Major Investments Early
Starting a company of your very own is an incredibly exciting time. Because of this, no one would blame you for wanting to buy the best equipment and renting a fancy office. However, you need to try to avoid spending too much money too soon, especially on things that you don’t actually need. For the time being, you should stick to working out of your home office and using the equipment that you already have. This means you’ll have the cash you need to market your company and find new customers.
10. Failure To Reinvest Funds
While you shouldn’t spend money unnecessarily, you can’t cut out spending altogether. From HP ink cartridges to website building services, there are lots of things your company is going to need to grow and run day to day. That being said, there are still ways to keep these costs low and save yourself a bit of extra cash. To start with, you need to ensure that you shop around for everything you might need to buy. You can also look online for coupons and discounts, or even ask you vendor for one when placing a large order.
11. Waiting To Seek Credit
When times are looking financially tough, and you don’t have an emergency fund to fall back on, you’ll likely seek a business loan or line of credit. Unfortunately, this is the very worst time to do such a thing. If your business is on the brink of going under, finding funding is going to be almost impossible. For this reason, you should make sure that you secure a line of credit when your company is doing well. This will give you a much better chance at convincing a lender that you’ll be able to repay what you borrow.
12. Lack Of Tax Planning
Tax planning for your business can be a lot different from tax planning for your personal finances, and, if you’re not careful, you could be hit with a huge tax bill. Because of this, you need to make sure that you make your tax planning a priority and stay on top of your business taxes. Unfortunately, this can be quite a complicated job, which is why you may want to hire a professional accountant to help you out. They can ensure that no costly mistakes are made, and can even find ways to save you some cash.
13. Wasting Your Precious Time
They say that time is money and that couldn’t be any more true in the world of business. When you’re running a company, your time is incredibly valuable, which is why you need to do what you can to ensure that it’s not wasted. Every moment of your working day should be dedicated to a specific task and achieving a particular goal. If it’s not, then you may as well be pouring cash down the drain. With that in mind, there are a number of ways to stay productive at work, including limiting your distractions, outsourcing unnecessary work, and taking regular breaks.
In the world of business, mistakes are made every single day, but it’s those revolving around money that cause the most damage. For this reason, you need to be prepared and do everything you can to avoid them. As long as you do this, there’s no reason why your company shouldn’t succeed.