Part of starting a business off on the right foot is knowing how to handle finances. Here are common financial mistakes that business owners should avoid.
After the 2020 United States’ employment crash, residents found themselves struggling to make ends meet, and many still are. It’s a great time to learn how to save money and stay employed.
One way to avoid losing your job is simple: employing yourself.
It can be a good option, but only if you run your business well. Unfortunately, good business practice is easier said than done. Many small businesses go under, and many others still struggle.
This doesn’t have to be you. Knowledge is power, so here’s a list of seven common financial mistakes to steer clear of.
1. Taking on Too Much Work
One of the most surprising, yet most common financial blunders is doing too much yourself. Yes, it is your business, but that doesn’t mean everything should be on your shoulders.
While avoiding payments to a large number of employees might seem logical, the fact of the matter is that overloading yourself or having too few workers with too much work causes problems. Nobody does their best when they’re running on empty.
Make sure your workforce is big enough for the task at hand, but still hire only within your means. Create a budget to learn what you can afford.
2. The Proverbial Eggs in One Basket
Counting on one source of income is a good way to end up in the red. Anyone running a business should take a lesson from the coronavirus pandemic: Even successful businesses tank under enough stress.
For your own financial security and for your business’ success, have other sources of income. Small businesses are risky, so balance your chances with safer ventures.
3. Not Working With Experienced Pros
Hiring an accountant or financial advisor and working with mentors isn’t admitting defeat. Far from it: it’s actually a tried and true method to ensure success. Think about it: Why do those professionals exist if not to help business owners like you?
Even if you’re a seasoned business professional yourself, it doesn’t hurt to have someone double-check your work. Plus, you can always claim the costs as a deduction.
4. A Lack of Backup Cash
It’s a fact of business that money problems happen.
You’ll be hard-pressed to find a small business owner who hasn’t had money issues. It’s vital to be prepared for failure, even when you have everything set up for success. Those without a cushion to fall back on are infinitely more vulnerable.
One way to access backup cash is through private money lenders. We’d all like to have a huge savings account, but that’s often not realistic. Luckily, lenders exist to get you the money you need.
Don’t forget to repay debts down the line, though.
5. Taking More Than What You Need
Business magnates and celebrities are indicted all the time for embezzlement, but you don’t need to commit crimes to dig in more than you should.
Business owners who fail to count their own salaries as common business expenses often end up in hot water. Budgeting without a salary might look like saving on paper, but in reality, you need money to live, too. You’re not starting a business just for fun, after all.
Without a salary, it’s all too easy to overestimate how much you can safely take. When unexpected expenses come up, self-employed people without a set salary find themselves unable to pay.
6. Financial Mistakes With Inventory
Another area overspending commonly occurs in is inventory. Sure, it’s important to have enough products to meet customer demands, but be realistic about what that means.
Plan your budget well and regularly revisit it to reflect changes in demand and revenue. Don’t keep buying if things aren’t selling, even if buying more is in the budget. It’s better to have that money on hand for expenses down the road than it is to have a huge inventory excess that you have to rush to sell when hard times come around.
7. Too Much Glitz and Glam
In the hit show Parks and Recreation, Tom’s first business fails when he spends all his capital on things like designer furniture, accessories, and even professional models and basketball players. While most business people don’t go that crazy with spending, there’s an important lesson in the joke.
Take a marijuana dispensary, for example. Many popular dispensaries look practically like Apple stores, making one wonder what their priorities really are. A wealthy entrepreneur or an already successful business can go in on such designer upgrades, but jumping the gun leads to big problems and sometimes failure.
Pretty storefronts attract customers, so do put some thought into the design, but don’t let it become your main priority. A fancy store with bad, overpriced products won’t do as well as an average storefront selling good product for reasonable prices.
It’s possible to have the best of both worlds. Be realistic and take cost-saving measures, like refurbishing used furniture and painting the walls yourself to create the store of your dreams without bleeding your business dry.
8. Forgetting About Taxes
Most business owners start out working for someone else. There are plenty of drawbacks to being an employee, but one big convenience is that taxes are calculated for you. While employees usually file on their own, W-4, W-2 forms, and payroll calculations are all factored in by employers.
Now, you’re the employer! This means that you don’t just have to file, but also have to do all of your business’ taxes. These include but are not limited to business taxes, property tax if you own the land, and payroll for you and your staff.
Another big difference between paying taxes as an employee and paying taxes as an employer is that business owners are required to pay estimated taxes every three months (every quarter). April 15 is still tax day—when you file your return and pay that quarter’s taxes—but so are January 15, October 15, and July 15. Failing to pay quarterly can result in big fees.
Due to unusual circumstances in 2020, the schedule is adjusted to June, July, September, and December 15.
Well-Rounded News: Stay Informed and Entertained
After reading about these eight commonplace financial mistakes, you can get your business up and rolling or back to full strength without worrying about hitting rock bottom.
Once everything’s in motion, get back to educating yourself with interesting and easy-to-read articles on topics ranging all the way from investments to CBD.
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