Common Financial Mistakes to Avoid When Launching Your Startup
More and more individuals are starting their own businesses. Unfortunately, it is all too common for businesses to fail. Luckily, avoiding several common mistakes can help you in your journey as an entrepreneur.
Investing Too Heavily in the Business
It’s common for new entrepreneurs to spend their dollars too freely, whether it’s on expensive equipment or a fancy office location. It’s tempting to pay for the best technology or workspace, but this can be costly. However, spending too much money on unnecessary expenses can erode both business and personal finances. It’s easy to burn through the money before you are even making any income.
Being as economical as possible in both your business and personal life can help you survive until you get things off the ground. Instead, look for ways of securing the funding you need to develop a strong product. One way of doing this is by getting a small business loan. This prevents you from having to dip too heavily into your personal funds. There are Accion Opportunity Fund small business loans available that can help you set up your startup for success.
While it’s best to live as frugally as possible, you also don’t want to be cutting corners. It’s common to cut corners on accounting or legal advice. If you don’t hire an expert, a single mistake can cost you much more than the cost of getting solid advice. You could end up owing more on your personal income taxes in late fees than you would have if you had hired an accountant. Insurance is another area you don’t want to cut corners in. Good insurance can protect your company, and it reduces the risk of unforeseen financial events. Make sure you have coverage at all times, even if you are canceling one policy to get another one. Do your research on the best types of insurance for your small business.
Mixing Business and Personal
Especially if you are already in a financial mess there are ways you could be mixing your personal and business finances without intending to. It’s common for entrepreneurs to take out another mortgage, be the personal guarantee on a loan, or otherwise leverage valuable assets for their businesses. If something goes wrong with the business, you will be personally liable for these debts. Instead, consider using only the business’s collateral for loan repayments.
Another common mistake is using a personal savings account or credit card for your business. It’s especially risky to do this if the bank won’t give you the money you need for a loan. It’s easy to charge more than you can afford to pay back. Mixing business and personal spending can be a nightmare if you are ever audited. If you are audited, you will need to come up with your business’s income and expenses for several years. This can get messy if you have to go through several accounts and credit cards to find all the expenses. The good news is that there are plenty of business credit cards available.