(This blog contains ads, see disclaimer at the end of the post)
Starting your own business is a steep learning curve. You’ll be thrown in at the deep end and if you’re going to survive, you’ll need to adapt quickly and learn all of the ins and outs of the business world. One thing that most new business owners struggle with is their finances.
Looking after the financial aspects of a business is a lot harder and way more complicated than dealing with your own personal money matters. There are so many new rules and regulations that you’ll need to understand so it’s easy to miss things. That’s why new business owners often end up making mistakes with their finances.
That’s bad news for your company because you can’t really afford to be making mistakes when you’re just starting out. You’ll only have a very limited amount of money to play with and if you lose it because you’re making simple mistakes, the business could end up going under completely. If you’re still struggling to get to grips with your finances, you need to make sure that you’re not making any of these easily avoidable mistakes.
Not Having A Separate Business Account
The first thing you should do before you even launch your new company is get a separate business bank account for it. If you don’t, you’ll end up getting your finances into a complete mess. If you don’t have two separate accounts, you’re going to struggle to keep track of exactly how well the business is doing. If you can’t work out what’s your personal money and what’s the business’s money, you won’t necessarily notice if the company is in financial trouble.
The other major problem that you’re going to have is overspending. When all of that money is there for the taking, you’re far more likely to start dipping into the business’s funds to pay for your own personal stuff. That’s the easiest way to burn through all of your money and land the company in financial trouble. It’s important that you separate your own money from the business funds right from the outset, otherwise you won’t have a clear picture of how the company is performing.
As we’ve already mentioned, having a good idea of the status of your business is vital. That’s why you need to calculate your profits accurately every single month. If you’re making mistakes and not getting the right figure, you’ll have a false impression of your business. If you think that you’re making more money than you actually are, that means you won’t cut back on spending and you’ll soon rush out of cash.
Calculating your overall profits is important, but you also need to be working out exactly how much profit you’re making on each sale. Some products will have higher margins than others and you might even be losing money on certain products. If you’re just calculating your overall profits, you won’t even realize that you’re losing money on sales. By calculating your profits accurately, you can be sure that you’re actually making sensible financial decisions.
Sorting out your own taxes is confusing enough but that’s nothing compared to dealing with business taxes. It’s a lot more work and a lot more new rules and regulations to learn. Unfortunately, that means it’s quite easy to make mistakes if you don’t really know what you’re doing and you’re probably going to get fined for those mistakes.
In serious circumstances, you might even end up having criminal charges brought against you (although this is usually only if you’ve deliberately avoided tax so hopefully shouldn’t be a problem). The majority of tax mistakes are perfectly innocent mistakes but that doesn’t make a difference. You’ll get a fine either way and when you’re first starting out, you can’t really afford to lose that money.
Hiring an accountant and getting them to handle your taxes is the easiest way to avoid mistakes but it’s also quite a big expense during a period when you need to be careful with your cash. Buying some tax software to help you do your taxes properly is a much cheaper option. There are a lot of different ones out there so have a look at the ultimate list of professional tax software for 2018 to help you decide. You might think that you can save money by just handling your taxes yourself without any help from tax software or accountants but it’s not going to work. You’ll end up making mistakes and having to pay hefty fines which can easily cost a lot more than buying tax software in the first place.
Expanding Too Fast
When you’ve been running your business for a while and you’re starting to build a good customer base, you might want to think about expanding. If you’re going to take on more customers then you’ll need more employees to pick up the extra work. It’s fine to take on all of those extra people and rent a larger office space for them all to work in, but only if you can actually afford it.
One mistake that new business owners often make is expanding too early and then realizing that they can’t afford to cover all of the increased running costs. This usually happens because they overestimate their success. After 2 or 3 months of increasing sales, they think that they’re going to carry on growing at the same rate and retain all of their new customers. Sometimes, that will be the case but more often than not, it won’t be. If you expand your operation and then sales dip, you’ll be in a difficult position financially.
Before you decide to increase your spending in a big way, you should wait until growth has been consistent for an extended period (at least 6 months to a year). You should also start putting a bit of money aside each month as a safety buffer. That way, if you do run into trouble because you’ve expanded too quickly, you can still keep your head above water.
You’d be surprised just how many new business owners make these simple financial mistakes but the good news is, they’re easily avoided.
Check out these other great resources to help you with your personal budgeting –
Also, here are the books we are reading through right now, check them out!
Yes, I include affiliate links in all my blogs. I get paid a little each time you click and buy from the included links, but I only recommend products that I use myself. Thanks for supporting our blog and our dream of changing the financial futures of all families and individuals! ~ Lydia Y-S.