Savvy and Successful: Avoiding Common Financial Mistakes in Small Business

Savvy and Successful: Avoiding Common Financial Mistakes in Small Business

February 2, 2023

When you’re venturing into a new business, it’s easy to get caught up in the excitement and spend frivolously. That’s why it’s vital to have a solid financial plan in place before you start operating. With a few clever tactics outlined here by Global Unzip, you’ll save yourself from unnecessary debt and soon begin seeing the benefits on your bottom line

Secure Funding

Many entrepreneurs choose to seek funding through traditional lending channels, which means you’ll need to have good or excellent credit. A credit score of 740 and higher will result in getting the best terms on any loans you receive, so be sure to pay down your debt and improve your score as much as possible before approaching a lender. But even if you don’t have disposable funds to use as capital for your business, there are plenty of other ways to secure a cash injection without incurring debt.

  1. Venture Capitalists: These investors are always looking to back the best and brightest ideas, so you may need to have a proven track record in order to get their attention. Growthink advises to start by writing a business plan that proves your commitment to your enterprise.
  1. Angel Investors: These are individuals who operate in a similar fashion to venture capitalists, however, rather than using an investment fund, they rely on their own net worth to finance small businesses in exchange for equity. If you aren’t able to identify a potential investor in your personal network, there are websites designed specifically to connect you to potential lenders that you could choose to take advantage of.
  1. Love Money: This option works similarly to a loan, however, it involves turning to close friends or family for funds rather than a financial institution. The difference with love money is that there are no fixed repayment stipulations which takes the pressure off you while you get your business off the ground.

Minimize Costs

Once you’ve secured some income. It’s vital to reinvest most of your cash flow back into the business to cultivate its growth. Create a budget that allows you to do this as conservatively as possible.

Furthermore, consider ways to minimize expenses. Operating out of your home or hiring equipment as needed rather than making big purchases upfront. There are a number of free online tools that may help you streamline processes like marketing and avoid unnecessary expenditure early on. 

Implement Sound Accounting Practices

As your sales begin trickling in, Practical Business Skills notes that it’s vital to keep thorough records for liability and tax purposes. If you can’t afford to contract a professional accountant, reliable software can pick up much of the slack. Streamline the invoicing process by making use of a program that allows you to set up recurring invoices and gives customers the option to pay online. With the right platform, you can put your invoicing software to work for your business. At the very least, it should be easy to use and send you alerts when you’ve received money so you’re fully aware of your business’s financial standing at all times.

Insure Your Assets

Although insurance is a grudge purchase, you’ll only truly understand its value when the rubber meets the road. Liability insurance is a must since you’ll need to protect your enterprise from any injuries or damage caused by your products or services, or on your business premises.

It’s also wise to insure any physical assets used in your operation, such as vehicles and buildings. These could easily be damaged and hinder your productivity as well as your cash flow. As such, be sure to put away the funds to cover your deductible so it’s easily accessible in the event of unforeseen circumstances.

Another way to protect your assets is to form your business as an LLC and operate as an S Corp. When you compare the differences of a C Corp vs an S Corp, you’ll find that any losses incurred as S Corp can be passed on to the owners, who can then claim them on their taxes. An S Corp is also a pass-through entity, meaning that corporate income passes through to individual shareholders and is taxed only on their personal tax return.

Starting a business is a serious financial undertaking, so it’s important to protect yourself by staying savvy from the get-go. Never underestimate the value of planning ahead and being cautious with your money-related decisions. This will help you turn over a profit sooner rather than later.

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