Every business owner’s dream is to see their business succeed, but unfortunately, many SMEs don’t even survive their first year. This is because entrepreneurs make financial mistakes that allow their hard-earned money to leak away. In this blog post, we will be exploring five financial mistakes that could cost you your small business.
Not having separate business and personal accounts
Separate your business accounts from personal accounts from the very beginning. Failure to do this will result in you spending business funds for your personal needs and vice versa, making it impossible for you to track your business’s expenses. You will start experiencing business cash flow issues and other monetary implications concerning filing taxes, balancing books and measuring profits.
Failure to create a budget
Budgeting allows you to accurately manage your finances and spend efficiently. Without a budget, you may end up prioritising some expenses and forgetting about others. Therefore, ensure that you create a carefully planned budget that covers all your operational and marketing costs. Take advantage of this opportunity to come up with a salary for yourself and your employees if you have any.
Not having an emergency fund
Any financial expert will tell you the importance of having an emergency fund for rainy days. Regardless of how much you plan, there will come a time when you encounter unexpected expenses such as a broken machine that needs replacing. Ensure that you save up a minimum of three months’ worth of your business’s expenses.
Overpaying your taxes
All businesses are legally required to pay taxes. However, many entrepreneurs overpay their taxes because they do not understand the complex tax system. If you are not sure about your tax obligations, reach out to a qualified tax accountant for assistance. They will help you file your taxes, avoid penalties and even benefit from tax reliefs and holidays.
Incurring credit card debt with the expectation of future revenue
While credit cards are easy to use, they expose you to the risk of deep debt. Irresponsible credit card use could run your business to the ground because of the high-interest charges. If you don’t want to forfeit the convenience of a card, consider getting a debit card instead.