According to the Small Business Administration, only half of small businesses will last five years. Poor money management is one of the reasons that many small businesses fail. There are a number of mistakes that your small business will need to avoid making.
Keeping Your Personal and Business Expenses Together
Many people think that it is easier to combine their business and personal finances. However, this can lead to a financial disaster. You will have a harder time getting an accurate picture of how well your business is doing financially if you combine your business and personal expenses. Your personal credit score can also take a hit if your business goes down.
Furthermore, it will be harder for you to do your taxes if you combine your finances. That is why it is important to have separate accounts for your business and personal finances.
Lack of Cash Reserve
You never know when you may be hit with an unexpected business expense. That is why it is important to have a cash reserve. You can dip into your savings if you have to pay something quickly.
There are other options if you do not have a cash reserve. You take out one of the secured loans. A secured loan requires that you make a deposit or secure the loan with an asset. You can also use a credit card or apply for a secured loan. A good credit score is typically required for an unsecured loan. However, it is best for you to build up a cash reserve so that you can avoid having to go into debt.
Making a Big Purchase Immediately
You have to invest money in your business if you want it to succeed. However, you do not want to make a big purchase immediately. You should grow your business before you start making big purchases.
Not Having Adequate Insurance
Insurance is essential for protecting your business. Many business owners do not know how much insurance they should have. They also do not know what type of policies they should get.
The type of insurance that you need can vary depending on your business. However, every business needs to have liability insurance in order to protect them from lawsuits. You also need to have health insurance for yourself and employees. Additionally, if you will be driving company vehicles, then you will need to have auto insurance.
Not Planning for Your Taxes
People who work regular jobs automatically get taxes taken out of their paycheck. However, business owners are responsible for paying their own taxes. In order to make tax season less stressful, you will need to start preparing in advance. It is best for you to make estimated quarterly payments so that you are not hit with a huge tax bill at the end of the year. Keep in mind that you have to pay state and federal taxes.
You may qualify for deductions that will reduce your expenses. That is why it is important to keep track of all of your expenses.