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Over 20% of businesses fail within the first year, and money (or the lack of it) is often cited as the cause. This is a shame, as starting a business can be the key to financial freedom for many.
If you are thinking of starting your own business, or if you have already taken your feet off the starting grid, then we wish you the best of success. However, to make sure you stay afloat financially, consider the following mistakes that are common to many new business owners.
Mistake #1: Taking out an expensive loan
To get your business off the ground, you might decide to take out a loan. There’s nothing inherently wrong with this, as this is the route that most entrepreneurs take. However, it is important to shop around. If you take out a loan with interest rates that are more than you can reasonably afford, you will struggle to stay afloat financially in your first year.
You should always look for those loans with the lowest interest rates, as you will have a better chance of making the repayment. SBA (Small Business Association) guaranteed loans are the popular choice for many, as there is a cap placed on the interest rate, so you won’t be faced with any nasty surprises. You can check out the services of Evolve Bank & Trust to learn more.
So, think twice before signing any agreement. Look for those loans that won’t break your finances, or consider other sources of funding, including crowdfunding, angel investing, or family lending.
Mistake #2: Making expensive purchases
As a new business owner, your goal is to save money, as it will be a while before profits start rolling in. So, think twice before making big purchases, as you don’t want to place your business in financial jeopardy.
Curb the temptation to buy the latest and greatest computers for your office space. Think twice before purchasing any item that your business doesn’t really need. And don’t automatically take out subscriptions on expensive office software.
To save money, buy second-hand when looking for office equipment and furnishings, and when it comes to business software, look for the freeware alternatives. You can always splash out later when you have more money to spend, but in the early days, be frugal within all aspects of your purchase.
Mistake #3: Not taking financial advice
If you’re a financial whiz, you might not need the expert advice of another. If you know how to manage your budget, deal with your taxes, and make wise spending decisions, you will be good to go. But if your money management skills are poor, and you don’t know the first thing about the ins and outs of business finances, seek help. Hire an accountant or a bookkeeper, as they will give you the advice you need as a new business owner. Yes, you will have to pay them, but as they will prevent you from making a financial mistake, the expense should be more than worth it.
Take heed then, and avoid these financial mistakes. By starting your new business on a firm financial footing, you will improve your chances of staying open in the long term!
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