Financial Pitfalls That Small Businesses Fall Into
Running a business is tough, and this is especially true for start-ups which may not have started making a profit. Many run into financial challenges due to poor financial management including securing capital, having to borrow money, inability to separate personal from business finances and managing the use of money amongst other issues.
The result is that many businesses close shop after a very short time. This is why business owners should take financial management classes to make sure that they can understand the financial aspects of the business. Engaging the services of the best tax accounting firm Toronto can also help manage your tax issues to avoid falling into trouble with the tax man.
So what do you need to consider when dealing with business finances.
Starting a business requires capital and equity. However, in the initial stages of the business, you will find that more money goes out than in. The business owner must reserve some cash to help tide him over during this period.
Lack of forecast.
It is important that the business owner has a forecast of the money he will require to run the business in the initial stages, including rent servicing of debts, wages etc. Without this, there will be haphazard spending that can seriously damage the financial capacity of the business. A proper business plan should highlight the expected expenses and how the business owner plans to take care of them.
The business owner must practice extreme discipline when it comes to borrowing money, so as to avoid overextending himself with debt which the start-up business may not be able to pay back. Using a credit card to purchase equipment can be easy but remember that this is a debt you are incurring every time you run the card. Ensure that you can pay back whatever you borrow within the loan period. Not paying your debts will make your business credit ratings poor and will affect your future ability to get financing from lenders.
It is important to know when to purchase things and only purchase what is absolutely necessary. For example, going for high-end decor items or furniture for a new office does not make sense for a start-up. You will be better off starting off small with an aim of growing bigger in the future.
Mixing business and personal finances.
it is important that you keep the two separate, it may be tempting to dip into the business finances for personal uses with the promise to reimburse at a later date, which rarely happens. Have separate accounts for the business and personal finances.
Going it alone.
You cannot be a jack-of-all-trades. If financial management is not your area of expertise then it makes no sense for you to try and balance your books on your own. Get professional advice from financial experts, tax experts amongst others.
You have taken a step in the right direction by starting your own business. It would be a pity to lose it due to poor financial management. Make the right decisions and consult the experts to make sure that you manage your business well.