Becoming a small business owner comes with a lot of risks, many of which could seriously impact your finances for many years to come. You probably have seen many businesses that appear to be doing well go out of business, likely because the owners made mistakes that affected the health of their business. So, you’ve got your business up and running; how can you make sure you’re being smart with your money and stay in the black? Here are four common financial small business mistakes to avoid.
Perhaps one of the most common small business mistakes and causes of failure is not accounting for hidden costs. How quickly you’ll start making money and the expenses you’ll incur during start-up can fail a new business quickly. But startups aren’t the only businesses prone to insufficient cash. Managing cash flow can be tricky as you ramp up and serve bigger businesses or wider areas but you’ll need to account for paying your growing staff, payroll stages and other overhead expenses that grow as your business grows. Another problem for an existing business is that with existing cash flow, it might be easy to ignore falling profits or growing debt.
Avoid cash flow problems by taking the time to accurately estimate all costs and account for the time it can take you to get paid. Get invoices to clients out on time, stay on top of collectibles, and continue to reassess your cash position often.
Mixing Business and Personal Funds
Combining business and personal finances is a common startup mistake. The moment you start your business, open a business account and keep your finances separate. Doing this right at the beginning will make it much easier to do the accounting for your business, plan for quarterly tax estimates, and budget for the unpredictable months that may lie ahead. This will also allow you to see a more accurate picture of your business’s financial health and prevent an overlap between what you personally earn and spend and what your business is generating. By having separate business and personal accounts, you’ll also shield yourself from a damaging credit score if your business gets into trouble.
Failing to Create a Budget, or Stick to One
Budgeting is critical to avoid financial mistakes. A budget will allow you to accurately manage your finances and spending efficiently. Create a personal budget and a business budget. Doing so will help you remember reoccurring payments like insurance or tax obligations, in addition to necessary business expenses. A budget will help prevent you from making significant purchases when sales are slow, better allowing you to see the full picture of your financial situation. Sticking to your budget will help you achieve and stay on track for your future financial goals.
Neglecting Business Insurance
You’ve worked to build a business — investing money, time and effort — now protect it. It’s crucial that your company is well-insured and protected from the unexpected. When you have the right business insurance in place, you protect your business from unforeseen events. You can count on BusinessMax® by Farm Bureau Financial Services to give your business the coverage it needs. BusinessMax is designed to guard your business against loss due to property damage or liability claims.
Every small business has unique insurance needs so your Farm Bureau agent will spend time getting to know you and your specific operation to help customize your coverage and tailor a plan as unique as your business.