Numerous Americans follow the entrepreneurial dream and start up small businesses every year. However, a large percentage of them do not succeed, and one of the main factors in their demise is a failure to properly handle their finances.
Because one of the key aspects of avoiding mistakes in business is proper money management, watch out for these common pitfalls.
Mixing Personal and Business Finances
One of the first things you need to do when starting up as a small business owner is to separate your personal and business finances. You can start by simply creating a dedicated checking account for your company. This makes it much easier to manage your books at tax time, and is also part of the procedure in initiating a business credit score, which you’ll need when you apply for a loan.
Starting Up Without a Business Plan
Avoiding mistakes in business includes having a business plan, which lays the groundwork for your company’s entire financial structure. It not only provides a fundraising tool that you use to lure investors, but it’s also a blueprint that enables you to build your business soundly. A traditional business plan includes an executive summary, a company description, a market analysis, financial projections, and other details.
Ignoring Business Taxation Procedures
Tax liability for businesses is more complex than personal taxation. If your income reaches a certain level, you may be required to make estimated quarterly tax payments. To avoid mistakes, consider hiring a professional accountant to help you get started with the proper procedures.
Being Too Wary of Debt
Although it’s natural to want to avoid debt when you’re starting out, it’s not always practical. Taking out a loan is often necessary when you want to stabilize your cash flow and pursue opportunities to grow your business. As long as you maintain a good budget and borrow only as much as you need, a loan can be beneficial.
Lack of Preparation for Emergencies
Optimism is essential for an entrepreneur, but it also pays to prepare for unexpected difficulties. Have a savings account in which you set aside funds that you only use in extreme emergencies.
For more advice on avoiding mistakes in business, contact Mossberg Strategic Capital.