Starting your own business? Here’s what to be wary of when handling your money
When you start your own business, you’ll be immediately bombarded with a lot of decisions to make, and many of them centre around money. Coming up with a financial plan and implementing it perfectly and accurately can be a real challenge, and every entrepreneur is guilty of making the odd mistake early on.
But if you can avoid these financial errors, you should. After all, small mistakes can lead to big consequences, especially when your business is still finding its feet. In fact, a study from CB Insights found that 29% of failed start ups suffered from poor financial planning, making it the second most common reason for not succeeding.
Identifying and understanding common accounting mistakes can not only improve your planning skills, but also your entire company’s chances of success. That’s why we’re here to shine a light on four of the most common finance errors for new entrepreneurs to avoid. Let’s take a look.
Relying solely on your intuition
When we enter the world of business, we’re often told to follow our guts. This can be great advice, but it’s important not to rely solely on your intuition when it comes to financial planning. It’s always best not to assume anything and to stick to the facts when handling your money, and don’t assume that everything is under control just because the numbers look good.
Create a system that allows you to track revenue against expenses clearly and easily, allowing you to stay on top of the situation at all times.
Forgetting to keep receipts
One of the best pieces of advice we can give to any new entrepreneur is to be organised and keep your files in order, and this means saving your receipts — even the ones that don’t seem important. This helps to reconcile your books or accounts for expenses.
It’s also important to balance bank statements by cross-referencing your accounts with any statements you receive from the bank. If there are any discrepancies, you can catch them early and deal with them immediately to stop the situation snowballing.
Failing to budget early
Not creating a budget for your business is a rookie mistake. Every project you undertake needs to be planned with a clear financial limit attached, and even if you do create a budget, you also need to address the fact that not all projects run completely smoothly.
Sometimes, unpredictable circumstances can impact your project’s budget. If you’ve failed to assign a budget in the first place, these costs can spiral out of control without you even realising.
Make sure you select a budget which is reasonable. There’s no use giving yourself a low budget to save money if you have no hope of sticking to it. Instead, be transparent about how much each project is likely to cost you and decide early on whether the return will be worth the expenses.
Hiring too quickly
A small business is only as good as its staff, but a large workforce also means higher expenses. One big mistake that new business owners often make is to hire too many people too quickly.
There are physical and emotional costs that come with hiring lots of staff, as well as costs in terms of time and money. You may need to invest in more equipment as a result, and if the growth of your start up is slower than you expected, you may be left in feeling vulnerable.
Another common issue are bad hires. Not taking the time to get to know your candidates properly could leave you having to work with the wrong people for the job.