Owning a business requires you to comply with many financial obligations – no matter what size your business is, getting the financial parts correct is key towards success.
In fact, lack of cash is the second most common cause for the failure of new businesses. However, we are all human and are, therefore, prone to making mistakes at times and this can include financial ones.
In this article, we discuss some of the most common financial mistakes business owners make. Hopefully after reading our article, these mistakes won’t be ones you make.
1. Poor initial planning
Unfortunately, when launching a new business some business owners do not plan adequately at the outset in terms of finances and costs are not realistically estimated.
With poor being the operative word here, some business owners do not ensure that they have enough cash in place to keep the business going before it starts to make a profit. Operation cash is key.
Even where your business may see some success at an early stage with sales being made, it may take time for customers to actually pay their invoices and yet there will be expenses which require paying in the meantime so having cash available will assist this.
And it is not just about planning for the correct amount of operation cash. It is also important to have emergency funds at hand for the unforeseeable; where a business owner has not accounted for the correct operation cash they may find themselves relying on credit cards which can come with hefty interest and annual fees.
A business owner can also potentially incur debt if the business finds it is unable to keep up with credit card payments.
2. Respecting your personal and business finances
Whilst business owners will often want to throw themselves into their business and this includes throwing as much finance at it as they think is possible, it is still important to respect your personal financial needs.
This should be done in terms of compensating yourself and in terms of protecting your financial reputation.
Keep your personal finances separate from your business finances to enable clear accounts and a clear understanding of where your business stands financially at any given moment, as well as being able to accurately plan finances moving forward.
Keeping personal and business finances separate also helps you to keep a realistic and healthy mindset about how your business fits within your daily life, rather than always seeing money coming into your business and simultaneously to you.
For more on organising your business and personal finances, see our previous blog here.
3. Avoid extravagance
Yes, it may sound like common sense as a business owner to ensure that you are careful and sensible with business finances but this is really is a must.
It is not simply about not being extravagant but about only purchasing what is really necessary, and when doing so going for the less rather than the more approach.
So if you need office space, there is no need to choose a plush office, and where a laptop is required, why purchase the high-tech one when one at a lower cost is sufficient?
4. Sound business insurance
Whilst ensuring that your business has insurance may appear to be an extra initial business cost and an ongoing cost to business that you would rather avoid, not securing insurance can be a financial business mistake in the long run.
It is essential that you have business insurance in place and a policy which is best suited to your business.
This will help you in the long run if things do go wrong and therefore, could save you the costs you have not seen coming and not, therefore, been able to account for.
Yes, budget is key! As a business owner, budgeting carefully and accurately means that you will know when to leave finances in place and how much, allowing you to be able to look after your financial commitments as you move forward.
As part of budgeting, it is also crucial that business owners understand what tax will be due at what point and to ensure that they have the funds set aside for this.
Different businesses will have different obligations and as a business owner you will have personal tax obligations too which can be determined by your business.
But it is not all about budgeting in advance, it is also about sticking to the budget as your business moves forward.
At Cue Talent Advisory, we handle all affairs business, management & lifestyle for individuals, businesses, and overseas clients which includes their financial affairs.