By Amy Collett
You're finally making your dream of owning a small business a reality. You know your industry, but do you know the common financial mistakes small business owners make? With these tips from Original Foster Des1gn, you can learn what these mistakes are and how to avoid them so that your business can reach its top potential.
Operating Without a Budget
For both your personal and professional lives, create a budget that helps you understand where money comes in and goes out and where you may overspend. As you assemble your budget, remember that taxes, business insurance premiums, and once-a-year expenses may creep up on you. Your budget may change over the years, so don't be afraid to adjust it when the situation calls for it.
Failing to Separate Business and Personal Finances
You likely invested your money into the company. If so, make sure you establish a clear division between business finances and personal finances. Neglecting to do so could muddy the waters when tax season rolls around, and you may encounter issues with your company's cash flow. Once you set up your business, open a commercial bank account. You may also want to establish a business line of credit.
Failing to Track Expenses
To help fine-tune your budget, track every business expense, no matter how small. Not knowing where your money goes could lead to confusion over bank statements, overspending, and a wrecked budget. Use reputable tracking software so you know where and how you spend every penny.
Failing to Plan for Tax Obligations
Meet with a certified public accountant familiar with helping small business owners. Understand federal and state tax obligations and how to meet them. That way, you reduce your chances of incurring a massive and unnecessary tax bill and paying penalties and fees.
For a healthier business, consider going to school to grow your accounting skills. Earning a degree online saves you time and money, both of which you can funnel back into your company. An accounting degree helps you build a better operation as you learn about business ethics, marketing, economics, and finance. Even better, online learning gives you the flexibility to balance taking classes, caring for family, and being an entrepreneur.
Not Having an Emergency Fund
For financial emergencies, it's not a matter of if they'll happen, but when. According to experts, in 2016, the average small business owner's debt was roughly $195,000. An emergency fund can keep you from becoming a statistic and running your dream into the ground. Rather than wait for the inevitable, plan for it now by starting an emergency fund for your small business. Make a habit of contributing to the fund as much as possible. Aim to save at least three months of expenses.
Making Unnecessary Purchases
Before making large business purchases, think about whether you need the product or service. For instance, perhaps you want to rent a large commercial space. You want a space that gives your company room to grow, but you should have a realistic idea of how much room you need. Before hiring full-time employees, determine whether you could work with independent contractors first before hiring traditional employees.
Give your small business a huge chance of success by spotting financial pitfalls before you stumble into them. Hopefully, the above tips help you know which money moves to make and which to avoid.
Original Foster Des1gn is a freelance Graphic Design company that provides Boston businesses & non-profits quality graphic design services in print media, logos, websites, posters, flyers, social media templates, banners, brochures, t-shirts, and corporate branding.