Whether your business is big or small, maintaining a balanced budget is one of the most important things to do in order to guarantee long-term success. If you're in the growing stages of your business, chances are your expenses are increasing at a faster rate than your profit. On the other hand, when a business is already well established with a steady revenue some business owners tend to get comfortable and forget to properly manage this income.
Check out the following financial mistakes to avoid for your business:
Mixing personal with business
Do not try to run a business by mixing your personal accounts and credit with business related expenses. Make sure to open a separate bank account only for the business and apply for a credit card under the business' name. Mixing your finances will only make it more difficult later on when it's time to file for taxes and when your business starts to grow. You'll also most likely have to forfeit some of the legal protections that come with forming an LLC if you mix the two.
Overspending on inventory
Although this financial mistake won't apply to every business, it is actually very common. When you're starting off it's normal to get overly excited which in turn blinds you to the realities of running a business. This may lead to the kind of overspending which will have you drowning in debt at a very early stage. Try to only buy a reasonable amount of inventory rather than a whole year's supply.
Forgetting to put money aside for expenses
When you get paid for that first exciting job, truth is you don't get to really keep all that money. Keep in mind that you need to pay your own business expenses like marketing, taxes, and if you have employees they are expecting a check too. It is also important to keep some emergency cash on the side for slow seasons when money is not flowing in.
Thinking you have all the right answers
Pride and ego are two big things some business owners can't put aside. Thinking that you know it all and not seeking the help of a financial consultant can drive your business downhill. Don't be afraid to ask for advice and seek help where you see it best. A certified public accountant can be the key to a lucrative company.
Over hiring
Wearing different hats in the business can understandably become too much to handle therefore causing you to hire help. However, hiring too many people too quickly can be a recipe for disaster. Having employees is more than giving them a paycheck. You'll also have to invest in the onboarding process, training, more office space, access to software and platforms, supplies, and benefits like health care insurance and PTO if you plan to provide that. Before hiring, think about what areas need major help at the moment and consider speaking with your accountant or hiring one in order to have a clear view of the finances and where they're headed.
Piling up the debt
As mentioned earlier, acquiring a credit card for the business is important to keep your finances in order. However, you also have to consider how you plan to manage that credit card as you spend. Avoid late payments and try to pay more than the required minimum amount so the interest doesn't rack up. Apply for credit cards that offer intro promotions or that provide benefits like cash back or points. Be in control of your finances and be mindful of how much you're spending and how much you can afford.
Having an outdated business plan
When starting a business it's important to create a business plan in order to have a clear view of your goals and where you want to go. As your company grows, remember to constantly update your business plan to match your current numbers, data, and objectives. Updated financial goals are particularly important and it'll help you keep your budget on track and ready for future expenses like marketing campaigns, office expansions, or hiring more staff.