It's just as crucial to keep track of your company's finances as it is to attract new clients and serve existing ones. If you're like most small business owners, though, bookkeeping and money management aren't your strong suits. If you avoid these seven frequent small company money blunders, you can stay ahead of the game.
The most difficult duty a small business owner takes on is generally handling the company's finances. The reasons are numerous, but most small business owners lack a background in business finance and, at least in the beginning, are more concerned with bringing in new business and providing excellent customer service than with record keeping and financial planning.
As a result, many entrepreneurs toil away at their enterprises for lengthy periods of time with only mediocre results to show for their efforts. Others absolutely fail.
When you own a business, you are responsible for both your successes and your failures. It can be satisfying to celebrate wins earned through hard work, but it can be difficult to recognize mistakes or blunders. This is especially true when it comes to financial matters in the workplace. Follow these guidelines to prevent making little financial blunders that might lead to major financial troubles.
Create a Separate Business Account
Mixing personal and business funds, whether you're beginning a new firm or running an existing one, is a prescription for catastrophe. If you're the sole proprietor and buy business goods with your personal credit card or pay for personal purchases with a business check, you'll find it tough to keep track of how much money the company is making or losing.
You'll also have a lot of trouble separating company and personal purchases at tax time to figure out what's deductible on your business tax form and what your profit or loss for the year is. If you are audited and the IRS suspects you of purchasing products or services for personal use and deducting them as business costs, your pain will get much worse.
You should have a separate bank account and credit card for your business, even if it is merely a part-time enterprise with limited revenues. When you first start out, you may need to get a credit card in your own name, which is fine as long as it's only used for company expenses.
If you need to use personal funds for business purposes - or vice versa - the proper method to address the situation is to conduct a legal transaction and document it. If you have any business partners, have them sign off on the deal as well.
You Forget to Keep Track of Your Expenses
Another common money blunder is failing to keep track of business expenses. Make it a practice to write down or document business spending from the start. This will not only assist you in determining where your money goes, but it will also assist you in calculating tax deductions when the time comes.
Choosing the appropriate pricing for a product or service is rarely a simple decision. If you charge too much, you risk losing customers to a competition. You won't make much money if you charge too little, and you can even lose money if you charge too little.
Small firms, especially those that are just getting started, frequently charge too little. They justify the low price by claiming that it is a technique of "getting their foot in the door." The price is sometimes cheap because a new business owner isn't including in the cost of his or her own labor, or hasn't precisely calculated all of the charges that must be factored in when determining rates.
When determining what to charge consumers, a fence company must consider not only the cost of the fencing, but also the costs of labor, advertising, office expenses, vehicle upkeep and repair, and other overhead expenditures.
An independent consultant may have fewer overhead or labor costs to consider, but she must consider her target annual income, how many clients she'll actually land and be able to serve during the year, how many hours of billable vs. non billable work time she'll have, and what her advertising, networking, and other promotional expenses will be.
You don't pay yourself
To achieve actual financial success in the first year of a business, many new business owners deprive themselves of a wage. When you don't pay yourself, though, you may lose motivation or be compelled to close your firm. Instead, save money in places where it isn't needed. While it may be difficult initially, even a tiny wage will help you stay motivated.
You've put all your money in one basket
Here's another minor blunder that could end up costing you a lot of money in the long run. Avoid relying on a single revenue stream for your company. It's perilous to rely on a "all-in" mentality, just as it is in the stock market. Continue to hunt for new sources of income to protect yourself from unforeseen business downturns.
You manually create pay stubs
Finally, avoid the temptation to do tiny things by hand. Pay stubs, for example. Calculations, deductions, and overtime might take hours to figure out. An online paystub generator would be a superior choice for doing payroll quickly and accurately. Payroll mistakes might lead to major issues in the future.
Keep your finances in order to avoid future tax issues, W-2 forms and disgruntled staff. Avoiding these minor blunders will help you avoid bigger problems down the road. A novice business owner may find the world of business finances intimidating, but you will learn the essentials as you go.