You’ve taken the plunge with your business idea and you are putting it into action. You have distinguished yourself as a risk taker. Millions of people dream of owning their own business, but don’t have what it takes to put themselves in a position of risk. The problem with being a risk taker is that you are more likely to make financial mistakes.
If you are just setting up your own business, like it or not, you face the onerous task of making some tricky financial decisions. Production, branding, who you employ and a whole load of other essentials cost money. You will need to make hundreds of decisions about what you spend your money on and what you don’t. How you manage your initial investment is critical. If you’re looking for advice on whether you’re eligible for a short term loan, be sure to get in touch with an established credit broker such as this one.
All businesses are open to risks, but while established businesses are to a certain degree able to weather financial storms, a bad financial decision in a start-up can be enough to stop it in its tracks.
Here are 7 ways to avoid making the disastrous financial decisions that will put you back with the wantrepreneurs.
1. Don’t view everything with a long-range mindset
The biggest mistake a start-up can make is in thinking BIG. While it’s admirable and healthy to have positive thoughts about how your business can scale up, focusing too hard on long-term growth could put you in a sticky financial situation.
2. Keep your eye on the cash
The expression ‘cashflow is king’ doesn’t exist without reason. A healthy cashflow at the outset of any business is imperative for moving the business forward. It’s no good being rich on paper if you are cash poor at the bank.
Running short on cash means you will have difficulty paying staff, bills and suppliers. It’s a situation in which many businesses have been forced to close. Read more in this guide on the importance of cashflow for start-ups. Balanced forecasting is key.
3. Invest in a financial mentor
Another big mistake start-ups make is dismissing the idea of paying for a financial mentor. Yes it’s a cost, but it’s an expense that is well worth it. Proper advice from your accountant should help you to minimise the risks when setting out with your business. A series of small financial errors could be just as costly as one big one.
Look for an accountant who can not only help you with your accounting, bookkeeping and tax, but also provide you with business advice and insight. A decent accountant will help with your bottom line and support you in a way that will help you to avoid making poor financial decisions.
Business planning is very important. Financial experts Wellden Turnbull are an Accountancy Age Top 100 practice, they say, “running a business without a plan is the equivalent of driving a car not knowing the direction of travel.”
There are many areas of expertise required when setting up a new business, from choosing the software you use to record keeping, GDPR requirements, tax, company administration, and much more. Employing a financial mentor or an accountant with start-up experience is a prudent investment. Accounting software company Xero have published a useful guide on How to Choose the right Accountant.
There are plenty of financial tips out there for entrepreneurs and start-ups, so it’s well worth doing some research online. The government have an online support service for new businesses, which is definitely worth a look.
4. Keep your business and personal accounts separate
Keep the line between your business and personal finances clear. You must do this from the outset. It will make financial planning and budgeting a lot easier, and it will make tax reporting simpler. Most of all, you will find it easier to take a regular view on your financial position, which is essential if you want to avoid cashflow problems.
5. Choose the right bank
All of the big banks, and many smaller banks, offer business accounts for start-ups. Some offer generous benefits, such as no bank charges for the first 18 months. There are a lot of business support add-ons so shop around for the deal that best suits your business.
Lloyds Bank offers guidance on the legal, tax and regulatory requirements of running a company. Nat West offer free business training courses with their business current accounts. Some banks, such as Barclays, offer loyalty benefits if you stay with them for a set amount of time.
For more information on what the major UK banks are currently offering, check out this handy guide by the Entrepreneur Handbook.
6. Consider funding options
There are hundreds of government grants available for small businesses, which can help to lower your costs when you are just starting out. Find out if you can get any financial support for your business here.
7. Plan for tax investigations and contingencies
There is every chance your business could be selected for a tax investigation. Make sure you are clear on the kinds of things that trigger a tax investigation. There is a lot you can do to ensure your tax reporting doesn’t send alarm bells to HMRC. Start by reading Start-up Donut’s guide on Tax Investigations and how to avoid them.
Do make provisions for unexpected bills. Without contingency planning, you could find your cashflow hits a wall when you face an unexpected expense.
Good Luck. Here are some more great financial tips for entrepreneurs launching a start-up.