Being a new small business owner can be an exciting, challenging, and nerve-wracking time. You may have jumped in with both feet only to find yourself not knowing what to do with all your new clients one month in — or, like many business owners, you may find yourself struggling to keep up with the financial demands that come with owning a small business. Today, SEOToolsAll.com outlines some common mistakes new small business owners make, as well as a plan to avoid each one.
- Allowing Everyone Access to the Money
SalesTrip suggests restricting company credit or debit card access to yourself or a trusted partner. You may be tempted to give an employee your new business card to go pick up lunch, or you might hand over the number to another team member who is ordering online supplies for the office, but it is better to keep that information to yourself. If you must give others access to company funds, set up a separate checking account for this purpose.
- Accumulating Credit Card Debt
It’s easy to spend a lot of money when starting a new business: There are websites to design, freelancers to hire, and employees to pay. Using a business credit card can be beneficial in certain situations, but it’s not always the best solution. If you need extra money, consider taking out a low-interest loan specifically designed for small businesses rather than accumulating high-interest credit card debt that will take years to pay off.
When you accumulate credit card debt, your credit score takes a hit. Stay on top of your credit score by checking your credit report so you can gauge what the reporting agencies – Experian, TransUnion, and Equifax – have on file. The goal is to reach and maintain a good or excellent credit score (740 and above is considered excellent). You can download your free credit report at AnnualCreditReport.com.
- Ignoring Your Budget
Accion Opportunity Fund points out that it’s important to have (and stick to) a strict budget whether you are a family of four trying to pay off credit card debt or a new business owner who is trying to reach his or her quarterly goals. In fact, regardless of your situation, calculating your debt-to-income ratio is essential if you want to get a handle on your spending. Don’t spend money on things that don’t matter, and make sure that all partners know and understand the budget before launching.
You may also consider decreasing or deferring your tax liability with a tax shelter. By reducing your tax bill or defer tax payments to a later time, you can reduce your tax payments. You can use a tax shelter in a number ways, including claiming business deductions on your tax return and investing in the capital market.
- Not Planning for Taxes
Businesses pay taxes too! It’s important to set aside money for upcoming expenses every year even before you know how much you’ll have to pay. Consider talking to a tax lawyer, accountants, or a tax professional to determine how much you may need to set aside for quarterly or yearly taxes.
An important component of helping make sure you don’t run into tax issues is using accounting software that works for you. Nothing can get your business shuttered faster than failing to meet your tax obligations, so using accounting software that takes the guesswork out of calculating what you owe in a given period is invaluable. Best of all, the software can grow with your business, ensuring that you won’t need to worry about changing systems down the road.
- Not Purchasing Business Insurance
Regardless of your line of work, you need to purchase business insurance to give your employees and clients peace of mind when working with you. Don’t ignore state guidelines and learn which licenses and insurance policies you need before opening your doors (even if they are virtual ones).
Before you launch, make sure you select the proper entity designation for your business type. A limited liability company is a good first choice for new business owners as it will help you separate your business finances from your personal ones, avoid unnecessary paperwork, and gain several tax advantages. Use state-specific guidelines and fill out your forms online through a formation service to avoid lawyer fees.
While there are many pitfalls and mistakes that come with owning a new business, you can avoid several of them by planning ahead. Use the five tips above as a jumping-off point and work with partners or team members to create payment plans, track expenses, and avoid debt by making smart purchases that will help your business in the long term rather than impulse buys.