The Small Business Money Mistakes to Avoid

Opening and running a small business is tough work and it is estimated that most start-ups will close before reaching the five-year mark. One of the biggest reasons for smaller companies to close doors is money management. There are five main ways that you can approach your business finances which can either make or break your company, including having a solid business plan and taking on good debt.

Business Plan

Many failed businesses have one thing in common, their business plan was not actionable or was only used as a fundraising tool. The right business plan can help guide you from one step to the next with both long and short-term goals thoroughly outlined, which can keep you from getting lost along the way.

Separate Accounts

Having separate accounts from the very beginning of your business is an important step. Even if you are freelancing right now, having a separate bank statement from your personal finances can help you see what kinds of profits and losses you have as well as make filing for taxes much easier.

Tax Planning

An aspect of small business which can creep up on you is planning for your tax liability on both the state and federal level. It is a good idea to set up quarterly payments, even for startups, so you do not end up in over your head as you grow. You can even research some tax regulations and breaks specific to your industry and state.

Emergency Funding

Adding a rainy-day fund to your monthly bills can help you stay afloat even when everything else is coming apart. It can be tough to justify setting the money aside before you are really turning a profit, but you will be grateful that you did if you ever need it.

Good Debt

Good debt is loans and lines of credit designed to help you grow your business without breaking the budget with monthly payments. This can be a good alternative to trying to pay for everything out of your profits because it can help you take advantage of time-sensitive deals or build credit for expansion loans in the future.

Sometimes it seems like everything is stacked against a small business actually making it, but with good money management, you can avoid some common pitfalls such as not having any credit history, lapsing on tax planning or not separating business and personal finances. The more you can work on these five money areas, the easier it is to turn them into benefits instead of mistakes.

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