Common financial mistakes made by small businesses
The pressure to attract new customers and drive consistent growth can often lead small business owners to lose sight of their finances. Indeed, bookkeeping can be tricky for entrepreneurs, particularly if they have not been formally educated in the world of business finance. To help you avoid falling at the first hurdle, we’ve put together some of the most common financial mistakes made by start-up owners:
1. Starting out with insufficient cash
Start-up owners are often a little too optimistic about how much money they will bring in during their first few months of launching. It is also very easy to underestimate the expenses that will be incurred.
In this way, it is important for business owners to get a handle on the difference between sales and cash flow. Whilst your sales predictions may prove accurate, it is important to remember that you may have various expenses to pay that will hinder your cash flow. To avoid issues with cash flow, make sure that you thoroughly estimate all of your costs and consider the amount of time it will take for customers’ money to reach you.
2. Delaying seeking credit
Many start-up businesses require small business loans to help get themselves off the ground, and there is nothing wrong with this. However, failing to apply for credit in time can present huge problems for business owners. If you apply for a business loan when you’re in financial trouble and are unable to pay the bills, your company will not look financially viable and lenders will be reluctant to help you.
3. Failing to abide by a budget
Thorough budgeting is important if you want to stay in control of your finances. Indeed, failure to draw up a realistic budget means you may end up missing insurance payments or skipping tax obligations. This will only put pressure on your finances and could end up pushing you into serious debt.
4. Combining business and personal finances
If you are the sole owner of a business, it can be tempting to purchase business supplies with a personal credit card. This is a bad move, however, as it will make tracking business cashflow very difficult. It will also present a huge headache when you’re trying to fill out your taxes at the end of the year.