Getting the financial aspect of your business right is critical for the success of your business. However, it is not always possible to get everything right. Even experienced entrepreneurs are guilty of committing financial mistakes that jeopardize their businesses. The good thing is that understanding the mistakes to avoid can save you from financial pitfalls that can impede your chances for success. That being said, here is a list of 10 financial mistakes that you should be wary of as an entrepreneur.

1. Commingling Finances

Make sure to separate business finances from personal finances even when running a sole proprietorship. Mixing the finances can bring various problems down the road. One, it portrays you as unprofessional to potential investors. In addition, it complicates your business accounts and taxes. If a problem arises, it can be difficult to prove which money was for the business and which was personal.

2.  Not Monitoring Cash Flow

Analyzing the cash flow is important in ensuring that you have enough cash to cover operating expenses. Checking it regularly can unlock insights into areas that you need to work on to improve your cash flow. This way, you are able to make informed financial decisions. Having an online checking business account such as Novo can help you monitor your cash flow efficiently. You get a 24/7 view of your account, giving you real-time insights into the state of your finances.

3.  Failure To Hire Financial Experts

When starting your business, it is easy to think that you don’t need to hire a bookkeeper or pay for financial advisory services. However, keep in mind that you aren’t exactly an expert in financial matters. Taking the mandate to handle accounting yourself on top of other tasks demanding your attention can prove costly down the line. You need someone knowledgeable to handle bookkeeping and other tasks such as payroll, taxes, and the like.

4.  Starting Big

It can be tempting to start big with the aim of making a statement in the market. You rent a huge premise, invest in new equipment, overstock products and hire employees that you don’t even need. The problem comes when you don’t start making money as you had planned, and you still have to repay the loan that you took to start. It is always important to evaluate things before you start. Be realistic about what you need and start small.

5.  Not Paying Taxes

Paying taxes for your business might seem obvious. But, do you know how much taxes you need to pay and when? Failing to get sufficient knowledge on taxes that relate to your business can land you in fines and penalties that you hadn’t planned for. Make sure to find an expert who can guide you. In addition, set aside money for paying taxes to avoid digging deeper into your pockets when the due date comes.

6.  Failing To Budget

A budget acts as a guideline for how to spend money and the income that you need to sustain the budget. Without a budget, you are likely to overspend and hurt your cash flow. A budget can also guide you in implementing different strategies to increase revenue in order to maintain a positive cash flow.

7.  Borrowing Money Without A Need For It

Having too much debt can weigh heavily on your business. While you will need to borrow money to grow your business, you need to be careful how much you are taking. Avoid borrowing when you don’t have a compelling reason to do it. Even then, check around to find a provider with favorable interest rates and payment terms.

8.  Pricing Too High Or Too Low

Pricing your products too low might work well in attracting customers to your business. But, an attempt to increase the price when you realize that you aren’t profiting can come out as unfair to the customers. On the other hand, pricing too high can scare your potential customers off. Always do your research to determine the best prices for your products.

9.  Failure To Diversify Income Sources

Relying on a single source of income can be fatal when it stops bringing in money. It is best to start diversifying and look for more avenues to make money. For instance, if you have a physical store, you can start an online store to attract new demographics. This way, when your physical store isn’t doing well, you can rely on online sales to stay afloat.

10.  Not Saving For Emergencies

Tough times are inevitable when doing business. The difference between businesses that survive a crisis and those that fail is in preparation. Start preparing today by setting aside an emergency fund. You can open a savings account and start saving money. You can also invest in assets that you can easily liquidate if needed.

Conclusion

Running a business successfully depends on how well you master your finances. That is why it is important to make sure that you are not committing the above financial mistakes. If you don’t have the budget to pay an expert, find a mentor and focus on gaining financial literacy.

Read Also:

• Effective Budgeting Tips For Low-Income Families
• Nine Business Management Tips For Ambitious Entrepreneurs
• 5 Tips For Successfully Starting A Business During A Recession