Running a business is the dream of many. You get to be your own boss and do whatever you are passionate about. There are no work schedules as well and as such, you won’t be reprimanded for being late. Being one’s own boss, however, comes with a lot of responsibility but the added responsibility can mean better pay at the end of the day.
This is one of the main reasons people quit their jobs to start their own businesses. With proper planning, the small businesses prosper to become large companies with huge turnovers.
Poor planning, however, has seen small businesses shut down even before they take off. The businesses make a lot of financial mistakes that make it difficult for them to thrive and survive. Let’s now take a look at some of the financial mistakes that most small businesses make.
Using the same account for their business and personal use.
Most business owners use the same bank account for their personal and business use. Operating the same account is convenient since they are able to avoid the hassle of managing separate accounts and credit cards.
This, however, is very wrong since the business has different financial needs to the business owner and using the same account could compromise the business owner’s financial well-being.
If the business gets into debt, the businesses owner gets into debt as well. But if they have separate accounts, the business getting into debt doesn’t compromise the financial position of the owner. Having a separate account for your business also gives you an accurate picture of how the business is performing financially.
Incurring debts with the hope of future revenue.
Most small business owners take up loans while expecting to pay them back later in future when the business’ clients pay up. This, however, is a wrong move since any failure on the client’s’ part to meet their obligations could put the business in a lot of trouble with the creditors.
The same applies to credit card debts. Businesses owners should avoid taking up and using credit cards without an elaborate planning of paying the debt back.
Not insuring their businesses.
Committing to an insurance plan is a costly affair and most small business, therefore, fail to insure their businesses in an attempt to cut their operating costs. This is bad since accidents can happen at the workplace and without an insurance cover, the business may find itself out of business.
Insurance covers risks such as fires and damage from natural calamities thereby protecting businesses from the devastating financial consequences of the risks. Learn more here of the insurance options that are available to small businesses.
Not using accounting software.
There are businesses that still run their businesses using spreadsheets as opposed to modern accounting software. Spreadsheets are cumbersome and result in a lot of errors.
Accounting software can eliminate these errors and this helps businesses better manage their finances. Small businesses don’t necessarily have to opt for expensive accounting software since there are free ones that are just as effective.