Owning a small business is a wonderful experience. It’s an adventure full of risks, success and even failures that help you grow as a person and as an entrepreneur. Even a seasoned business person can learn something valuable with every new project. Small businesses thrive on ingenuity, but there is a delicate balance to be kept in terms of risk taking that can mean the difference between success and failure. Some mistakes are quite common and fixable. But if you can avoid making them, all the better for the growth of your company.
1. Overpaying Taxes
Taxes can be a headache for small business owners or freshly minted entrepreneurs. Because many people don’t fully understand the complex tax system, they end up overpaying taxes that could have been deducted. Monitoring your cash flow in the bank isn’t enough. You may need to hire an accountant to help you keep track of your spending and organizing your receipts so that you can maximize your tax returns. Trying to navigate the complex issues of taxes yourself can be tempting if you’re looking to save money for your company. But a mistake in that aspect can end up being much more expensive than hiring an accountant or an attorney. Overpaying taxes is easily avoidable, and can cost your business thousands of dollars a year. Something most growing companies can’t afford.
2. Inadequate Cash Reserves
Sufficient working capital is important for your business to overcome unforeseen hurdles. For this you not only need to budget properly, but also have an adequate cash reserve. It’s vital to foresee the unforeseen. Things don’t normally go as originally planned, so having a proper cash backup to get out of sticky situations is key. It’s easy to spend freely when you know you have money in the bank, but without proper budgeting and management, these savings can run dry and your business will be left financially unprotected. A good rule to follow is to always keep enough for at least two months of operating costs. If it makes sense for your business, a potential solution to maintaining sufficient cash reserves is to acquire a non-conventional small business loan. This prevents you from having to lean on credit cards, as they can have very high interest rates for businesses.
3. Not Separating Personal and Business Finances
Keeping your books in order is essential to maintaining your finances balanced and organized. This can be difficult to do if your personal finances are tangled up with your business’ money. It can then take a lot of time and money to sort out through months of receipts and purchases. Even so, you risk costly mistakes when it comes to paying taxes. Many small business owners consider it more practical to have just one account for everything, especially when the business is just starting. But in the long run it becomes a muddle of purchases, statements and transactions that will be complicated to disentangle.
An easy solution to this problema is to create a separate banking account from the very beginning. Most banks offer excellent options for small businesses. Provided your company has a tax file number, you can easily open an official business account and start using it immediately for all your transactions. Many banks even offer consulting services to help you with the different stages of managing your business’ account.
4. Cutting Corners or Overspending
When you’re a small business that is just beginning to grow, your budget can get quite tight. This can lead you to have to choose what things you allow yourself to invest in and where you’re going to save money. It can be very tempting to cut corners and try to save as much money as possible. Although saving and cautious spending is advised, it’s also very important to know where making a bigger investment is best. Good quality equipment and excellent staff who know what they’re doing are a must, so cutting corners there is not a good idea. It can mean a high turnover rate in the future that will be harmful to your business. Investing in a solid marketing campaign is also essential. You can have the best product in the world, but it needs to be boosted by a marketing strategy to make an actual impact.
On the other hand, splurging on unnecessary things can also lead to financial distress for your company. If your business is small or just starting out, it’s important to plan ahead for the heavy spending. It’s easy to look at other successful business owners and compare your situation to theirs. At this stage it’s better to think carefully before spending and make sure that every expense will bring measurable benefit to the company. The custom desktops, fancy swivel chair and expensive coffee machine can wait.
Diversifying Too Early
If you’re wise about spending and have a clear business strategy you will start seeing results soon. That wonderful sense of achievement can give you a renewed confidence to look to the future with more ideas of expanding. This is never a bad idea, but you must be wise about it. Trying to diversify before your first project has had a solid development could put it at risk. You could find yourself overworked and struggling to meet the demands of two different business fronts at the same time. If you’re definitely set on expanding, look for a niche that is compatible with where you already are. This will ease the pressure and make the growth process a better experience. Also make sure that your initial product or service has a solid business plan and marketing strategy, so it will not depend on the success of your new venture.