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7 Financial Mistakes New Business Owners Should Avoid

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7 Financial Mistakes New Business Owners Should Avoid

7 Financial Mistakes New Business Owners Should Avoid.

A lot can go wrong when starting a business. And most of the mistakes you make end up costing you serious money. Since a startup is not generating revenue streams at full capacity, this can be a problem. So, to help you maintain good financial health during that critical time, here are seven mistakes you need to watch out for. 7 Financial Mistakes New Business Owners Should Avoid.

7 Financial Mistakes New Business Owners Should Avoid

 

7 Financial Mistakes New Business Owners Should Avoid

  1. Not having a financial plan

The biggest mistake you can make as a startup owner is not creating a financial plan. We already discussed about this and its impact – Investing without Financial Plan and Goals. Without one, you will have a hard time maintaining financial stability. Having a solid plan in place gives you clear insight into how much capital you have to spend and how much revenue you need to earn to run a profitable company.

A good financial plan has the ability to guide your decisions. For example, before creating new overhead costs like a second broadband or a landline, you can calculate how many sales or clients are necessary to cover those expenses. The same goes for any categories of investment or financial deal you intend to make.

 

  1. Not keeping your business and personal accounts separate

When you’re starting your new venture, create a separate account for everything business related. Your savings, checking and credit card account titles have to be on the company before you receive the first payment to avoid any problems in the future.

The obvious benefits are easier bookkeeping and having clear insight into the state of your financial health. On a more serious note, it also protects you from any misuse of business funds which can result in Tax fraud. Not to mention it helps you maintain a good credit score, which can take a lot of time to recover when it drops.

But the main significance of opening two separate accounts lies in its psychological value. You are less likely to burn through the cash that arrives if you don’t see it as yours. Instead, you will use it to invest in the future of your company to generate more revenue.

7 Financial Mistakes New Business Owners Should Avoid

  1. Spending big right away

If you’re looking to make a business investment when setting up your startup, think twice before you commit. It’s easy to get carried away by your new business venture and spend big money on unnecessary equipment, supplies, software, and even staff.

Instead, create a list of the bare minimum requirements, and stick to it. And even then, you should look for cost-effective investments. For example, if you need to invest in marketing, you don’t have to invest in a full-time marketing hire from the start. Instead, explore near-free ways to market your small business, and invest your time in learning how to do a lot with as little as possible.

 

  1. Creating debt on multiple fronts

When securing funding for their startups, many owners access multiple financial sources to raise enough revenue to get started. But when a number of these are loans with sizable interest, the combined interest rate can make a real dent in your budget.

So, unless you can borrow money from friends and family or raise capital through crowdfunding, it’s always better to take out start up business loans than several credit cards, mortgages, or smaller loans. Doing so will cut any debt in half, and leave you with a significantly smaller monthly overhead cost.

 

  1. Not hiring a bookkeeper or accountant

Even when you are good at managing finances by yourself, it’s always best to hire a professional to do it for you. Keeping books in order might not be a full-time job at first, but as your startup grows, so will the amount of work required to maintain your company’s clean bill of financial health.

Hiring a person or agency to manage finances allows you to focus on other aspects of your business. You will still remain in the loop but through regular reports and monthly meetings.

 

  1. Not saving capital for difficult times

In both personal and professional life, savings help you overcome unexpected financial challenges like unforeseen costs or periods with slower cash flow. When this happens, it’s always good to know there is a financial safety net that will prevent your startup from taking on unnecessary debt, or in the worst case, going bankrupt.

Create a separate savings account for your company, and to start with, put at least 10% of your initial capital there. Once you start turning in revenue, make sure to treat it like an overhead and deposit a flat amount each month.

 

  1. Not having insurance

A lot can go wrong in business. And when you think about all the reasons your company might go under, it’s hard to imagine that an employee accident, a cybercrime attack or malpractice will be the reason. But it can, and does happen. So, it’s better to be safe than sorry and pay for insurance than get hit with a hefty fine from a lawsuit down the road.

 

Conclusion

Starting a business is an exciting time for any startup owner. But it’s also when big mistakes happen. It’s essential you treat the first year of your business with caution, especially when it comes to finances.

So, don’t let it happen to you. Avoid these seven mistakes, think over every decision, and there’s every reason your business will stay financially sound.

7 Financial Mistakes New Business Owners Should Avoid

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7 Financial Mistakes New Business Owners Should Avoid

Victor T. Miller, a Sydney-based business and marketing specialist who has expanded businesses over 5 years. I am a person who loves to inform people about the latest news in the industry also as sharing tips and advice based on my professional experience and knowledge.

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7 Financial Mistakes New Business Owners Should Avoid
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7 Financial Mistakes New Business Owners Should Avoid
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7 Financial Mistakes New Business Owners Should Avoid. A lot can go wrong when starting a business. And most of the mistakes you make end up costing you serious money.
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