Do we even need to say that starting up your own small business is a challenging enterprise? There’s so much to consider, from money to customers, to delivering quality, to ensuring you don’t burn out.
However, if you have a good idea, are willing to work hard and are cautious with your money, chances are you’ll be able to make your vision fly.
Here are some of the top money pitfalls to keep an eye on when launching your small business:
If you’re buying stock or paying employees, there’s often a success tipping point you’ll need to reach before your customers start paying you back. That poses a challenge for cash flow problems. As well, when you want to take on an exciting new project or grow, you need money to take the risk.
To avoid getting caught short, keep track of your cash flow via spreadsheet so you know when money is coming in and when it’s set to go out. As well, talk to your bank to secure a credit line to help keep things moving.
Get Some Ease On Those Expenses
If you’re pulling out the credit card regularly to pay for startup costs or supplies, it’s important to minimize the resulting interest imposed by a high balance. Try a card with a lower-than-average interest rate like the MBNA TrueLine MasterCard. At 9.99 per cent AIR, you’ll be spending less of those startup dollars on the cost of carrying debt. The MBNA Platinum Plus also offers a ZERO per cent interest rate for the first 10 months for those transferring their balance over from another card (it goes up to 17.99 per cent after that).
Keeping Business Separate
Particularly if you’re starting a very small operation, it’s easy to mix up personal and business expenses and income – but it’s a bad idea. Come tax time, it’s difficult to tease out what goes where. That can lead to higher fees from your accountant, who has to sort out the mess.
More worrisome, you could struggle to get things in order and write off personal expenses. If you are audited, those errors will come out and you can be subjected to extra penalties and interest.
It’s best to keep a separate business account and credit card, and keep all your business expenses separate.
Don’t Go It Alone
You need help to run a small business, particularly on the money side. At the very least, pay a professional bookkeeper or accountant to do your taxes every year, and consider having them help you with everyday money tabulations and payroll. The cost of this professional will come back in multiples thanks to more efficiency and fewer mistakes. Plus, you gain access to a professional’s expertise on the money side. Extra bonus: if and when you are audited, your accountant will take care of the process and let you just focus on your business.
When you’re just starting out, it’s a challenge to make sure you have the right amount of staff, stock, support services and the like. These things cost money and if you find you’re overstaffed or have too much product on hand, it’s an expensive error.
Look to your banker, accountant and other support professionals and refer back to your business plan when make choices that will result in costs. Best solution: do as many of the hours as you can yourself, at least at the beginning, outsource services whenever possible and always have a backup plan for getting more stock or increasing your services if demand is high.
When you’re in start-up mode, every penny should go back into the business. Yet, you can’t live on nothing for long without it impacting your personal life and long-term financial planning. As soon as possible, give yourself a fair salary so you can continue to contribute to the family, put money aside for RRSPs and be able to do things for yourself (be it having a massage, putting in a round of golf or going out for dinner with your partner). If you’re suffering, the business will eventually suffer.
Starting up a business is no easy feat, but if you make the right money choices early on, that side of things will run smoothly so you can focus on what really matters: your customers, your plans for your business and your own enjoyment of being your own boss.