Listen, we know everyone makes mistakes. We’re only human.
Starting a business in itself is all about trial and error; finding out what works for you and your business and what doesn’t.
But, when it comes to your finances, unfortunately, there is less margin for error. You don’t need us to tell you that your business needs funding to survive. And, whilst every business is different, everyone tends to make similar mistakes the first time around.
So, here’s where you can come out on top – learn from other businesses ‘ mistakes so you don’t do them yourself. Below are the 5 most common mistakes people make when starting a new business.
Mixing business and personal.
When starting a business, setting up a business account should be one of your priorities. In the beginning, it may seem like more hassle than it’s worth but trust us – it will save you in the future.
It’s too easy to use your personal banking account when purchasing business-related things and mistakenly using your business card for personal spending. Whilst it may appear convenient at the point of purchase, every penny you spend on the wrong account is going to cost you time and confusion when you’re working out your expenses for tax purposes.
Keep everything separate. Having a separate business account means you can keep track of all your expenses, and don’t have to spend time mulling over what train ticket was for a meeting, and what was the family trip away.
Also, another way not to mix business and personal is to not use your personal funds or savings for business where possible. We understand that when starting a new business, some of your own money will be used to get the business off the ground, but further down the line, if you were to experience financial difficulty in your business and you invested all of your personal savings, it has the potential to be detrimental to your financial standing on a personal level outside of your business. This isn’t worth the risk.
Going too big, too soon.
Business owners want the very best for their businesses. That’s a given. Every business wants the state-of-the-art computers, large modern offices and, cutting-edge technology – but spending beyond your means is a sure-fire way to burn through your money dangerously.
This doesn’t mean it isn’t always wise to invest in things that will keep your business ahead of the competition, but every purchase should be a properly thought-out decision with cost vs benefit analysis.
Another mistake to avoid here is to avoid using your financial backing and outside investment for unnecessary purchases. This money should be used to elevate your business and keep it afloat, purchases that are not essential should not be considered until your business is at a stage of financial freedom and you have the luxury to spend more freely. Whilst investing in software that will make your jobs easier may be a smart decision, spending big on frivolous office furniture just because it looks nice is not so wise. Do you see our point?
Where’s the Budget, Budget, Budget?!
“Fail to prepare, prepare to fail.”
This may seem like an obvious suggestion. But research shows that 61% of businesses do not have a set budget.
As a business owner, one of your main goals is profitability. To achieve this, you need to stay on top of what is coming in and out of your business. If you don’t keep track, it’s easy to lose sight of spending and find yourself spending more than you’re bringing in.
Having a budget set in stone means you know what spending is occurring that month, and as such is likely to deter you from unnecessary purchases. If you haven’t planned for it in the budget, it’s probably an impulse buy – if not, put it in next month’s budget.
No emergency funds
Nobody wants to see their business struggle, but unfortunately, roadblocks occur – often ones we could never have planned for. This is why it’s necessary to have an emergency fund, you never know what could go wrong.
Just look at the past year as an example. COVID has taught us that financial planning is desperately needed to withstand external shocks to the business, both from a cashflow and emergency fund perspective.
Experienced entrepreneurs and financial advisors recommend that between 3 to 6 months of your operating expenses is a sensible figure to have saved away for a rainy day, but that’s not always achievable. What you can do is plan by investing in covering yourself ahead of a catastrophe.
Speak to us about how our key person cover, health insurance, and life insurance could be a solution.
Thinking you need to be a one-man-band.
While many businesses are sole traders or start as one person in their bedroom, this doesn’t mean that you have to do everything alone.
Running a business is incredibly difficult to get right and doing everything yourself – no matter how experienced you are- can lead to mistakes.
It’s always acceptable to ask for help. Running a business is hard. Staying on top of your finances, especially as a small business can be daunting. You don’t have to overwhelm yourself by doing it all yourself. There are a number of ways you can alleviate stress.
Help from peers can be great for new businesses who don’t have to finances to seek professional help but know people in business who can offer free advice. There is a multitude of apps and cloud accounting services that can help you stay on top of your accounts and bookkeeping.
Investing in professional help from an accountant early on can stop you from making mistakes that are completely avoidable early on. As well as this, they can take the load off your to-do list, making running a business that bit easier.
As always, at Shenward we are here if you have any further questions or would like to contact us to see how we can help you and your business https://shenward.com/contact-us/.
