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A small business can be incredibly rewarding, and many people choose to start their own company rather than pursue an office job that doesn’t align with their personal goals or lifestyle. However, running your own business also means taking on new risks and responsibilities that you may not have considered in the early stages of your startup. Avoiding financial mistakes in your small business will save you money down the road and prevent your company from going under before it even gets off the ground.
Here are six of the biggest financial mistakes that can destroy your small business before it even has a chance to succeed!
Mistake #1: Not setting up a company bank account
Some assume that since a company’s bank account is in their name and they are the company’s sole founder, there isn’t a need for a corporate bank account. While it is true that you don’t technically need one as an owner, having a separate bank account can save you from much-unwanted trouble.
For example, if your business takes on more than one partner or investor and disputes arise about how to split up the money, you’ll want to be able to show clear records of what was paid into and out of the company. It will also help protect your personal finances should anything happen to your business — in such cases, a court order may require that your accounts be frozen until those financial matters are resolved.
Mistake #2: Spending money too quickly
Do not spend any money before you completely understand what is involved. Just because you have saved some cash does not mean you can spend it recklessly. The last thing you want to do is deplete your funds early because there will be plenty of unexpected costs and bills to pay down the line.
However, this goes both ways — if you need to raise funds, don’t worry about spending them all in one go. It’s better to get your business up and running now than wait months or years until you have enough savings. As long as you make sure you don’t spend too much (or at least more than planned), investing every penny into growing your company is okay.
Mistake #3: Ignoring taxes
Ignoring taxes is a huge financial mistake that can kill your small job and will likely get you into trouble with the IRS. If you ignore the tax issue, even if it’s just for a little while, it can snowball and end up hurting you in the long run.
If you don’t file taxes properly, there’s a big chance that the IRS will audit your business and assess penalties (which means even more money out of your pocket). It’s not worth the risk! As an entrepreneur, one of your primary jobs is ensuring all paperwork gets filed on time and includes all necessary information.
Mistake #4: Not having a backup plan
When starting your own business, it is essential to have a backup plan. Something that will allow you to make money when your first idea fails. This could be an Etsy shop, a sideline business, or extra freelance work. If the worst-case scenario comes true and you fail, having something in place to keep some income will go a long way to making sure you can still pay the bills while trying again.
Mistake #5: Not having a marketing budget
Having a marketing budget is essential. If you don’t have money to market your product or service, then nobody will know about it! And if nobody knows about it, then no one will buy it!
Additionally, without a marketing budget, you may miss out on some of the most effective ways to promote your business. A major part of marketing is providing fresh content that informs readers and entices them to take action. For example, by spending $100 on a Facebook ad campaign targeting potential customers who might be interested in your product or service, you can reach thousands of people for pennies each! By not having a marketing budget and not using other advertising methods like search engine optimization (SEO) and social media advertising (SMA), you are essentially throwing away free opportunities to generate more leads and sales.
Mistake #6: Poor money management
Poorly managing revenue and inventory costs is one of the biggest mistakes leading to debt issues and bankruptcy. While revenue is important, having inventory on hand to match your demand level and continually buying more inventory when you don’t need it is a drain on the company’s cash flow and profitability. Maintaining a healthy supplier relationship can help keep costs down for your business long-term. Talk to your suppliers about how they charge for their products and inquire about discounts they might offer.
Another cost-saving tip is to buy as much inventory as possible at once instead of ordering smaller amounts over time which will result in increased shipping fees.
One of the best ways to get and stay financially fit is to invest in a POS like Hana Retail. It can help small businesses with inventory control, customer data storage and more. If you want to learn more about how POS systems can benefit your business, contact us today and make sure you avoid making any of these costly mistakes!