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A small business can be incredibly rewarding, and many people choose to start their own business instead of taking on 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 in the future and prevent your business from going under before it even gets off the ground.
Here are six of the biggest financial mistakes that can destroy your small business before it has a chance to succeed!
Related: 6 Financial Mistakes Small Businesses Make All the Time
Mistake 1: Not setting up a business bank account
Some assume that because a company’s bank account is in their name and they are the sole founder of the company, a corporate bank account is not necessary. While it’s true that you don’t technically need one as a homeowner, having a separate bank account can save you a lot of unwanted trouble.
For example, if your company takes on more than one partner or investor and disputes arise over how to split the money, you’ll want to be able to show clear records of what went in and out of the company. It will also help protect your personal finances if something happens to your business; in such cases, a court order may require that your accounts be frozen until such financial matters are resolved.
Mistake 2: Spending money too quickly
Don’t spend money before you fully understand what’s in it. Just because you’ve saved up some cash doesn’t mean you can spend it recklessly. The last thing you want to do is deplete your funds early because there will be a lot of unexpected costs and bills to pay.
However, this goes both ways: if you need to raise funds, don’t worry about spending them all at once. It is better to start your business now than to wait months or years until you have enough savings. As long as you make sure you don’t spend too much (or at least more than planned), investing every penny to grow your business is fine.
Mistake 3: Ignoring taxes
Ignoring taxes is a huge financial mistake that can kill your small business and likely land you in trouble with the IRS. If you ignore the tax issue, even just for a while, it can snowball and end up hurting you in the long run.
If you don’t file your taxes correctly, there’s a high chance the IRS will audit your business and assess penalties (which means even more money out of your pocket). It’s not worth the risk! As an employer, one of your main tasks is to make sure that all documentation is filed on time and includes all the necessary information.
Mistake 4: Not having a backup plan
When starting your own business, having a backup plan is essential. Something that will allow you to make money when your first idea fails. It could be an Etsy shop, a side business, or additional freelance work. If the worst comes to pass and you fail, having something in place to keep some income going will go a long way in making sure you can still pay the bills while you try again.
Mistake 5: Not having a marketing budget
Having a marketing budget is essential. If you don’t have money to market your product or service, no one will know! And if no one knows, no one will buy it!
Also, without a marketing budget, you may be missing out on some of the most effective ways to promote your business. An important part of marketing is providing fresh content that informs readers and encourages them to take action. For example, by spending $100 on a Facebook ad campaign targeting potential customers who might 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 throwing away free opportunities to generate more leads and sales.
Mistake 6: Poor money management
Mismanagement of income and inventory costs is one of the biggest mistakes that lead to debt problems and bankruptcy. While revenue is important, having inventory on hand that matches your level of demand and continually buying more inventory when you don’t need it is a drain on your company’s cash flow and profitability. Maintaining a healthy relationship with suppliers can help keep costs low for your business in the long run. Talk to your suppliers about how they charge for their products and ask about discounts they can offer.
Another cost-saving tip is to buy as much inventory as possible at once instead of ordering smaller quantities over time, which will increase shipping fees.
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, customer data storage, and more. If you would like to learn more about how POS systems can benefit your business, contact us today and make sure you avoid making any of these costly mistakes!
Related: 6 Things You Don’t Realize Are Hurting Your Business
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