Major Small Business Money Mistakes
Being an entrepreneur is an exciting goal for many people today, and many are able to work on their dream business thanks to the internet and the ability to build a company in a “lean” fashion with little to no overhead.
According to the Small Business Administration, 50% of small businesses fail within the first five years, and most of this failure is due to money issues. For any business to scale in an effective way often requires some financing or additional working capital.
So before your small business begins or moves forward to reach the next level, make sure you don’t make these detrimental mistakes.
No Business Plan
You might think you have everything planned out perfectly in your head, and you might. But having all the minute details written down in a formal and organized plan is crucial to your success if you want to grow and eventually hire employees 0r contractors. It will help guide workers and your marketing strategy towards your goals. If you ever need financing, it will also be a major deciding factor for any bank or investor.
The business plan should include past financial details, current goals for each quarter (or month), as well as projections for the next five years ideally.
No Separate Business Bank Account
No matter how small your operations are if you’re serious about the business, it is better to separate all business and personal expenses now before it becomes too difficult to remember which are which.
When it comes time to do taxes, having comingled funds is a red flag for auditors and will make it more difficult to write off legitimate business expenses. It’s not necessary to set up a true business checking account immediately, but having a separate account used strictly for business purposes is essential.
Let Taxes Roll Around Without Preparation
The IRS recommends paying quarterly taxes when you’re a small business owner. If you make more than you expect, it’s far too easy to not have the funds available by the time tax payments are due at year-end. This is where profit projections from your business plan come in handy.
As your company grows and the accounting side of things becomes too time-consuming, hiring a professional accounting firm will provide you peace of mind knowing you’re following all the new tax laws while taking advantage of any possible tax write-offs.
Be Unprepared for Times of Limited Cashflow
No business can do without a certain amount of cash flow, and if you’re not prepared for that day, it is much more difficult to secure funding when you’re desperate than when you don’t really need it.
If you have good credit, it’s beneficial to apply for a credit line before you really need it or to have on hand specifically for emergencies. See if you qualify today.
It’s also ideal to dedicate a small percentage of your budget to a savings account to start, to ensure your inventory isn’t impacted by funding and that important bills are all being paid on time.