Starting a business is an exciting venture that often marks the beginning of a new stage in your life. If you have always dreamed of being self-employed, then congratulations on finally being able to achieve your goal! As a small business owner, you should beware of certain financial mistakes that could easily lead to the downfall of your company. According to the Bureau of Labor Statistics, about 20 per cent of small businesses fails within their first year. Luckily, this doesn’t have to be the case for your business. Read on to discover 5 common financial mistakes that you should avoid to ensure that your business remains afloat for many years to come.
1. Mixing your personal finances with business finances :
This is one of the first mistakes that entrepreneurs make when starting up. It is especially common in small start-ups whereby you are the sole operator of the business. By mixing your personal finances with business finances in one bank account, you run the risk of getting into some serious problems. For instance, you won’t be able to accurately analyze the financial health of your business. In addition, you might also develop a bad personal credit score in case your business becomes less profitable. Hence, you should always open a separate bank account for your business finances.
2. Overspending in the name of investments :
Like any new business owner, you definitely want your company to succeed. Unfortunately, this desire often causes many entrepreneurs to make the mistake of overspending in the name of making business investments. For instance, if you don’t have a lot of capital, to begin with, then don’t compete with big corporations by trying to rent the most expensive office space and buying luxurious furniture. You should do your best to operate within your means as a first-time business owner. Have a modest budget in the beginning stages then over time, you will be able to afford to make more investments.
3. Not keeping proper accounting records :
Proper bookkeeping is an essential part of any successful business. When starting your business, this is the best time to build the habit of keeping proper financial records that will help you to analyze the progress of your business over time. Like most small business owners, you may not be able to afford a full-time accountant at the moment. Don’t worry because you can easily get accounting outsourcing services from bookkeeping.com. This enables you to get high quality and detailed accounting services at an affordable price.
4. Making excessive drawings :
Any wise business person knows that drawings eat away from your profits. Hence, the more drawings you make, the fewer profits you will have available. It is always advisable for first-time business owners to strive to reinvest as much as possible during the initial stages. This gives your business a strong foundation, thereby making it able to withstand future financial storms. As your business grows, then you will be able to make larger drawings without jeopardizing the financial stability of your company.
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