With the need for flexible working and an attractive work-life balance, the thought of starting your own business and ‘being your own boss’ continues to be the dream for many budding entrepreneurs. However, considering that 30% of businesses fail in the first year it can sometimes make potential business owners apprehensive about getting into their chosen sector.
This is why money management as a new, small business owner is vital to your success. Fork out expenses where it may not necessarily be needed and it can be a costly mistake. Make sure you’re aware of the common money-mistakes that business owners make so in the future, you can understand to avoid these pitfalls and provide longevity for your success. Here are 5 to that you should look to avoid.
Starting a business without a plan
Creating a business plan provides a foundation for your business and what to expect. It will help you with business operations and keep track of how your business is progressing. For those with large aspirations, a business plan is extremely important when pitching to investors who are looking to fund your business.
Think of a business plan as a roadmap to your future success. It’s a timeline of where you’re at from the beginning, what your business looks like now and then where you expect it to be in the future. It can help with goal setting, projects, forecasting, and general accounting.
Not splitting up your business and personal accounts
You need to be able to track every dime that is used and invested in your business. Mixing work with pleasure makes this extremely difficult to keep on top of with your accounts. The moment your business opens you’re officially a business owner – this means dealing with your own finances and declaring what you’ve earnt and what expense you’ve taken out. Having a separate bank account makes this process extremely straightforward. Even if it’s just taking out a checking account.
Not thinking about tax liability
The previous point brings us nicely onto the next crucial point, taxes. Perhaps when you were working full-time, it’s something that you didn’t have to pay too much attention to, as it was all confirmed from your pay-check at the end of the month and declared through your employer. Now, as a business owner, it’s your responsibility to declare your tax and what you’re liable to pay.
At the beginning numbers are likely small to start with, making it relatively easy to keep on top of your finances. As your business grows, this is likely to change as you get more involved with the day-to-day running of the business. This is where having a personal accountant may be useful to keep on top of your tax liability. They’ll be clued up on current tax laws and be aware of the most efficient process to pay your income.
Not starting a rainy day fund
Unexpected scenarios can happen to anyone, like a downpour of rain when we weren’t expecting to use an umbrella. In business, there can be occasions when an unexpected rainy day appears that affects our inventory, stock, and even our customers or clients.
The problem with rainy days being unexpected is that small business owners don’t tend to think about rainy day funds, particularly when it’s the early days where the business isn’t making as much money. To avoid any major disasters aside, save money aside that you don’t directly invest into your business or spend freely so it can be used as an emergency fund when you need it most, and risk your business from failing.
Being inactive when it comes to debt
Being extremely cautious with your funds and building a successful business from the bottom to the top is a fantastic achievement. It can feel exceptionally satisfying knowing that you’ve built a business without going into financial debt.
The issue with being too tight with your money, however, is that it can stall your growth and you’re essentially maintaining your business, without actually increasing cash flow. This is where the majority of small businesses fail because they have poor cash flow management resulting in masses of debt and clients introducing litigation solicitors to take legal action against them, which you wouldn’t want.
This is where taking out a loan can be useful. It can help to build the foundations of solid cash flow, growing and reinvesting in your business whilst paying the bank loan too.
Building a business is always possible, with the right management
Having the dream of building your own business and enjoying what you love is still a possibility. Don’t let your fears of financial detriment hold you back, just be responsible with your money and invest it in the right way. By considering these money management mistakes, you’re far less likely to see your business go down the drain. Ensure you plan, work hard and always have the passion for what you do and soon enough, you’ll be on the path for a successful business.
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