Only 50% of small businesses. That’s how many will survive past the first five years. The question is, how can you avoid being one of the companies that fail?
If you want to increase your chance of success, getting your finances right is the best thing you can do. Keep reading to discover common financial mistakes that you need to avoid.
1. Not Applying for Financing
Many business owners think they’ll never need to work with lenders to finance their business. They can run everything with their own money and don’t worry about their business credit score or networking with investors. The question is, how far can operating like this take you?
Business owners underestimate how much financing can accelerate the growth of their businesses. It can help fund purchase orders, develop new products, and expand teams. If you wait to get financing deals set up, you’ll end up missing out on opportunities to expand your sources of income.
2. Indulging on Small Purchases
It’s easy to make smart decisions on large purchases. These products will make a large dent in your bank account. This self-control is more challenging when it comes to smaller business purchases.
Give small purchases the same level of scrutiny as you do with large ones. It’s easy to let small purchases take up much of your spending budget when you don’t scrutinize everything your business buys.
3. Not Automating Financial Tasks
Your financial records need to be accurate if you want to make smart business decisions. Unfortunately, mistakes are easy to make if you enter financial data by hand.
There are now financial products that will automate much of this work for you. These products will log into your bank accounts to download all your data and categorize it. Once your data is correctly entered into your software, you can view advanced reports that give you great insights into your business’s financial health.
4. Mixing Personal and Business Finances
A lot of people skip the administrative headache of separating business and personal accounts. It’s easier for them to get up and running by using their personal bank account for everything. While this might help you get started faster, it leads to problems down the road.
You need a way to make clear what your personal and business transactions are. With your finances mixed, you’ll spend more time than necessary, categorizing your income and expenses.
5. No Retaining an Emergency Fund
It’s easy to be overconfident when your business is doing well. Everything looks great when you’re creating financial projections. The problem is that you never know when a disaster will hit your company.
If you don’t have an emergency fund for hard times, you run the risk of going out of business when something terrible happens. Make sure your business financial plan includes an emergency fund so you can stay afloat in these situations.
Don’t Fall Victim to Common Financial Mistakes
It’s easy to overlook finances when you’re working on your business. You need to worry about introducing your company to the world, so there isn’t much time to pay attention to much else. Take the time to plan your finances so that you avoid common financial mistakes.
Do you want more tips for managing your business finances? Check out our latest posts to learn more.