In most cases, starting a business requires spending money to rake in more money. Some people believe frugality is vital when starting a business, while others believe you need to go all out to make your mark. But no matter where you stand on spending money, one thing you can agree with is that making the wrong money moves can cost you your business. No matter how brilliant your business idea is, cash will remain its lifeblood during your first few months (or even years) of operation.
That means you need to put the proper financial measures in place from the start to help ensure that your business does not become another statistic. And that includes avoiding some money mistakes. So, are you thinking about starting a business? Do you want to see your brand make it through its first years? Then you need to avoid these money mistakes and maximize your cash flow.
Not having a clear budget for your business
It is possible to run a business without a clear plan for the future in a few cases. But you cannot do the same if your business does not have a clear budget or at least a rough work to guide your monthly spendings. Profitability should be your primary goal if you want your business to succeed, and having a clear budget will help steer you in that direction.
Making the wrong purchases for your business
If you’re starting a business, it makes sense that you want to get the best gadgets to help you do your work – laptops, printers, best software, a catchy website, an ultra-modern office, name them. But one question you should always ask yourself before you make any purchase is if an expense will bring short-term revenue. If you need to make purchases on a large scale, put the proper measures in place to promote a transparent relationship between you and your suppliers. You can use cryptocurrency smart contracts to function as a transparent middleman between you and your suppliers.
Taking on personal debt
The temptation to dip your hands into your fund to support your business is often strong. And although it makes sense to make such sacrifices for your business, you don’t want to be piling on personal debt in the process. First of all, be sure to separate your business and personal accounts, and always ensure that you run either account options dry. Next, be lean as possible in both your personal and business lives while you still grow your company. The first stages of starting a business are always tricky, and you will likely run into one financial difficulty or another. That means making substantial financial commitments at this stage (like buying a house or a car) might come back to bite you when you need extra funds to fall on. And this leads to the next point.
Not creating a financial safety net
For most startup businesses, the first few months (or even years, in some cases) offer nothing in terms of profits. And during this period, you need to find a way to keep your business breaking even until you start seeing some profits. Aside from that, you also need to save for rainy days. From delayed payments from clients to canceled deals, unexpected events can show at any point and threaten your finances. That is why you need to have a source of a financial cushion to fall on to cushion you during such periods.
Most experts agree that business owners need to have at least three to six months’ worth of business expenses saved to use as a financial safety net. You may also want to consider getting some insurance packages for your business when you can afford to. Some startup owners wait until they can afford it to get suitable insurance packages. But depending on where you live, it might be mandatory. Most businesses need liability insurance, with the most common options being the general and professional liability policies.
Ignoring your tax obligations
Different businesses have different tax obligations. And as a business owner, you are responsible for taking the initiative to ensure that not only do you register your operations, but also you pay your taxes in full. Otherwise, you will be left with a huge tax bill every year, which might drain your finances.. So, take the time to plan accordingly. Plus, failing to meet your tax obligations will also attract severe penalties.