As a business owner, it’s essential that you make smart financial choices or else it will ruin your running business. Good finance habits sets businesses up for success by empowering them to focus their energies on growth of their business. Financial mistakes will hinder the ability to expand your business.
Few financial mistakes to avoid that might kill your promising business:
Bearing high interest debt:
Not all debts are bad, you need a loan to run your company but some debts may become nightmares if you aren’t careful. The loans you take from the bank to run your business may have a reasonable interest rate but credit card interest rate is reasonably higher. Make an inventory of all your outstanding debts along with the interest rates and start paying the ones with the highest interest rate first. Keep repeating this process until you become debt free.
Letting your credit score slip:
If you fail to pay your loan timely then your credit score will start to slip. This implies that even if you qualify for a loan, interest rate may become exorbitant. Personal loans, business loans, credit card loans and even insurance premiums all depend partially on your credit score. In the worst case, many banks wouldn’t even approve your loan request. Understand how to improve your credit score and various factors that can contribute to a good score to keep the numbers high.
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Not building an emergency fund:
If you assume there will be no downfall in the business then you might want to think twice. Entrepreneurship sure does come with substantial risk even for people with solid financial ground. Most businesses face difficulty in the first years to streamline their business. If you go without a backup plan, you might have to worry about paying rent the next day. You may want to save some emergency funds for some rainy days. You may take example of current crisis businesses are facing: the covid-19 pandemic, businesses are struggling to survive during this crisis and only those that have an emergency savings will have an easy time recovering from this unprecedented time. It is advisable to have at least three months worth of expenses in a contingency fund for business and personal expenses.
Avoid the reality of bills:
You may not enjoy the reality of bills but design with bills sooner will help you manage finance better. Any delay or ignorance in payment of the bills may harm your credit score and also lead to an increase in the debt. Make it a habit to deal with your debts on a priority basis.
Not looking for side income:
As a business, you will realize sometimes the company does well and sometimes it doesn’t. Meaning at times profit may not be that high. As a business it is essential to make side investments to gain extra income in case your company does not profit that financial year. You may think of investing in bitcoins for your side income without spending too much time as everything is automated.
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Not separating your business and personal accounts:
Many business owners do not separate their business account with that of a personal account and pour all their life saving money into the company assuming it to be a wise choice. Hold your horses because this is the biggest mistake you will be making. You must separate company accounts with that of personal accounts for your financial security. Funding your company from personal accounts, is a healthy way to start a business. However paying electricity bills and depositing funds from customers in the same account will give a headache for life. Make an effort to create separate accounts for both. This will ease up the tax calculation and keep a tab on business profitability.
Managing your finance wisely means rooting for better finance that could make the business run smoothly in the long run. Your focus must be on the company’s goals rather than on financial complexities. Keep finance simple by paying debts in time and keeping your financial affairs to stay on the right track in terms of company’s growth.