Starting a business takes time, consistent efforts, and a lot of money! Many business owners see negative cash flow in the early days when the outflow of cash is more than the incoming cash. Eventually, in order to direct their business towards growth, they often make money mistakes only to face financial troubles.
Thus, making smart financial decisions early on is the key to avoid unexpected churns and keep your business on track. Below are the six most common money mistakes every business should take note of-
Mixing Personal And Business Finances
It is one of the biggest mistakes to avoid. Think of your business as a separate entity. All the revenue you earn through your business should go to the business first. By doing so, it will be easier for you to determine the financial growth if your business. You will be able to see what the cash flow is, or if the business is worth your efforts or not.
On the contrary, if you mix your personal earnings and your business revenue, you won’t be able to determine the business’s profitability. Moreover, it is necessary to keep the business financial records separate from the personal to apply for a business loan or improve credit score.
Not Deciding The Business Budget
A business budget helps you determine how much money you need to borrow as a business loan. It allows you to estimate your future income and expenses, helping you control your finances. Also, it helps you know which expenses are important for business growth and which ones need to be cut down.
List your expected income, fixed expenses (payroll, utility bills, etc.), and variable expenses to create a business budget. Keep the income estimates on the lower side, and the expense estimates on the upper side.
Not Paying Attention To The Credit Score
Having a good credit score is the prerequisite to getting the right business loan when you need it the most. There are many ups and downs in business. Sometimes the situation is so unmanageable that you have no other option than applying for a loan.
However, if your business records have not been good in the past, investors may perceive a risk and deny from offering you financial support. You are forced to use your assets as collateral to secure a loan, which may further impose a risk. Thus, it is necessary to focus on improving your credit score.
Not Raising Capital For Business Operations
During the initial stage of your business, you may not have enough cash to meet recurring expenses. Thus, to keep business operations functioning efficiently, it is necessary to raise capital.
You can apply for a business loan from traditional banks, or look for other professional financial solutions, like a fast business loan. Don’t take too much debt, though. Get clear on how much amount you need, and be realistic.
Spending Too Much On Upfront
While it is essential to have a positive mindset towards your business, being too optimistic can put you into trouble. Having unrealistic expectations causes you to spend too much on office space, advertisement, buying unnecessary inventory, etc.
No doubt, it is crucial to present your business in the best possible way. But, you need to maintain a balance between your current consideration and the costs you may have to bear later. Before you invest in anything, just think if the costs will generate profits that will offset them.
Not Managing The Taxes
Whether you like it or not, taxes need to be paid mandatorily. And, missing the deadlines attract penalties that affect the cash flow. Further, if there are so many defaults from your end, the Income Tax Department may knock at your door for auditing that further attracts penalties.
So, make accurate calculations in the financial plan. You can talk to an income tax consultant to determine the approximate tax you will need to pay every year. The amount you will have to depends upon the company’s growth anticipated for the coming year and the budget presented by the government during the beginning of the fiscal year.