When you own your own small business, there are many temptations to spend more than you earn and overlook opportunities to save. After all, this is your company, not another employee who has no interest in your future! However, many new entrepreneurs make mistakes that can have long-lasting negative consequences on their personal finances as well as their business. Financial mistakes can arise from not having enough experience, too much confidence, a lack of planning or being unrealistic about how long it will take to see a return on your investment. The good news is that most financial mistakes are avoidable if you keep these factors in mind before making them. The following are some common financial mistakes businesses make:
While it’s normal to be overly optimistic and excited about the new business venture, you need to keep your emotions in check and be prepared for problems. One of the biggest financial mistakes new businesses make is failing to plan adequately for contingencies. From finding office space to hiring staff, there are many expenses that can come up unexpectedly. The best way to avoid these hidden costs is to have an emergency fund and a spreadsheet with your company’s projected expenses and inflows. You can also set up an account at a credit union or another financial institution that has lower fees. You can even set up a savings account with no-fee online bill payment services like Squirrel or Mint.
There are many ways your customers and employees may try to steal from you. Some small businesses are targeted by criminals who offer to sell their products at a lower price and then divert the money to their own accounts. Another common type of scam is when your employees try to steal from you by stealing from customers. You can reduce the risk of theft if you keep a digital record of all incoming and outgoing payments.
Another common financial mistake is overstating your revenues. New businesses often think they need to charge more to make up for their lack of experience and scarcity of capital. However, this can lead to the company’s revenues being overstated, which can cause the business to lose its ability to get financing in the future.
One of the most common financial mistakes is overstating the amount of money you don’t want to invest in your business. Many new businesses make the mistake of investing too much money too quickly. This is a common mistake among those who are impatient or don’t understand the process of scaling a company.
Another mistake new businesses make is not taking into account the amount of money they don’t want to invest in the business. It’s easy to get carried away with the excitement of starting a new venture and not considering all of the expenses you will incur along the way. Make sure you account for all of your costs, including the cost of renting office space and other business-related expenses.
One of the biggest financial mistakes businesses make is not securing a disaster recovery plan before disaster strikes. While this may seem like an unnecessary expense, it’s one of the best things you can do to protect your business. A disaster recovery plan can help you avoid financial ruin and can provide you with a plan to get your business back on track after a problem.
Finally, once you’ve avoided these common financial mistakes, you need to make sure your finances are adequate. Many new businesses make the mistake of trying to keep up with their expenses and not saving any money. This can be a short-term strategy that will ultimately lead to a cash-flow crisis. You need to find a balance between having enough cash to operate your business and having a rainy day fund.