For many of us, the ability to step out on our own and become our own boss is very appealing. Despite the appeal, starting your own business can be a very bumpy road.
In order to set your new business up for success, it’s important you take the time to make sure you get all your ducks in a row. If you are able to do that, you’ll hopefully be able to avoid some of these common pitfalls.
Blurring the lines
Not separating your business and personal accounts is potentially the most common mistake a new business owner will make. But in reality, it really should be a no-brainer!
Creating separate accounts should be one of the first things you do when you set up your business. Although it may seem like a matter of convenience, especially when you're not generating much income, you should make a real effort not to mix your accounts.
The main reason to keep your accounts separate is that it will allow you to get a better picture of your business' financial position and health. As a result, you won’t have to spend time sorting through your financial transaction to figure out the personal versus business expenses.
Splashing out too early
When you first start a business it is understandable you may want to purchase items or platforms that may help your business. However, before you do, make sure you think these purchases through.
Although, some of these purchases may be necessary, such as a new website or marketing material, a company car or a flash office, may not be. In order to figure out what is essential and what isn’t ask yourself, ‘can I satisfy the need with a cheaper more efficient option?’ For example, instead of hiring an in-house bookkeeper, consider utilising affordable online accounting software such as CashManager by Accomplish.
A lot of new business owners will justify some purchases as long-term investments, however, investigate ways you can save money on the nonessential. Small but affordable investments are a better way of investing back into your business without blowing out the budget.
Put everything on credit
While using credit to purchase and set up a business is a common practice, it needs to be taken with a grain of salt. Improper use of your business’ credit cards can set you up for a lot of debt in the future.
Although, credit cards are extremely convenient to use and they make life easy, continually purchasing things will only compound your business’ debt. This could lead to high interest on your repayments, especially if you are unable to repay the full amount each month.
For a new business, compound debt and high-interest rates are crippling. So try to plan and budget for as many purchases as you can. If you don’t need something straight away, set a plan in place that’ll allow you to save for it.
Not having a safety net
You may think it’s a no-brainer but you’d be surprised how many businesses don’t have a sufficient safety net in place.
The occasional down period or seasonal fluctuation is a natural part of business, regardless of size or industry. In order to navigate these fluctuations, businesses should make it a habit to put money aside.
It’s a good idea to budget for and forecast for these lean times or emergencies. A good habit to get into is to put a certain percentage of your revenue aside to protect yourself when times get hard.
Not having a budget
This is one of the most important parts of establishing a new business. You will be setting your new business up for failure if you don’t take the time to carefully plan your finances.
As a business owner, you are responsible for driving your business to success. This will be very hard if you don’t have a clear picture of your financial health and what you are generating. Even if it’s a rough outline, you should have a realistic understanding of your income, expenses and profit. This will help you prepare for downturns, understand sales cycles and know how much you can reinvest into your business.
For new businesses, it may be hard to forecast sales cycles and income at the beginning, but getting in the habit of creating a monthly or yearly budget will set you up for future success.
Starting a business is an extremely exciting time in any entrepreneurs’ life. However, in order to set your business up for success, and reduce any personal liability, you need to make sure you take the time to establish the business properly. Try to avoid making these common mistakes, if you are able to, the business’ future will be a lot brighter.
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