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Running a small business can be incredibly rewarding, and many people choose to start their own business rather than have 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 later and prevent your business from going under before it even gets started.
Here are six of the biggest financial mistakes that can destroy your small business before it even has a chance to succeed!
See also: 6 financial mistakes small businesses make all the time
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 sole founder of the company, a company bank account is not required. While it’s true that as an owner you don’t technically need one, having a separate bank account can save you from unwanted problems.
For example, if your company is taking on more than one partner or investor and there are disputes about how the money should be divided, you want to be able to provide clear records of what has been 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 your accounts to be frozen until those financial matters are resolved.
Mistake #2: Spending money too quickly
Don’t spend money before you fully understand what’s at stake. Just because you’ve saved some money doesn’t mean you can spend it recklessly. The last thing you want to do is run out of credit prematurely with so many unexpected expenses and bills to pay down the line.
This goes both ways though – if you need to raise funds, you don’t have to worry about spending them all at once. It’s better to get your business up and running now than to wait months or years until you have enough savings. As long as you make sure you’re not overspending (or at least more than planned), it’s okay to invest every penny in growing your business.
Mistake #3: Ignoring taxes
Ignoring taxes is a big financial mistake that can ruin your little job and likely get you in trouble with the IRS. If you ignore the tax issue, even if only for a short time, it can snowball and hurt you in the long run.
If you don’t file your taxes properly, there’s a big chance the IRS will audit your business and impose penalties (which means even more money out of your pocket). It’s not worth the risk! As an entrepreneur, one of your main responsibilities is to ensure that all paperwork is submitted on time and contains all the information required.
Mistake #4: Not having a backup plan
When starting your own business, it’s important to have a backup plan. Something to monetize if your first idea fails. This can be an Etsy shop, a side hustle, or a freelance side job. If the worst case scenario happens and you fail, having something to get some income to make sure you can pay the bills while you try again will go a long way.
Mistake #5: Not having a marketing budget
A marketing budget is essential. If you don’t have money to market your product or service, no one will know about it! And if no one knows about it, then no one will buy it!
Additionally, without a marketing budget, you may be missing out on some of the most effective ways to promote your business. A big part of marketing is providing fresh content that informs readers and inspires action. For example, if you spend $100 on a Facebook ad campaign targeting potential customers who may 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 wasting free opportunities to generate more leads and sales.
Mistake #6: Poor money management
Poor management of revenue and inventory costs is one of the biggest mistakes that leads to debt problems and bankruptcies. While sales are important, having inventory on hand to meet your demand and constantly 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 over the long term. Talk to your suppliers about how they charge for their products and ask about any discounts they might be offering.
Another cost-saving tip is to buy as much inventory as possible at once, rather than ordering smaller quantities over time, which results in increased shipping costs.
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, storing customer data, and more. If you’re interested in learning more about how POS systems can benefit your business, contact us today and make sure you don’t make any of these costly mistakes!
See Also: 6 Things You Didn’t Know Are Hurting Your Business