Monday, November 21, 2011

6 Money Mistakes The New Business Owner Makes

Business as UsualImage by _Davo_ via FlickrMany new business owners get so consumed by their new business venture that they make common personal finance mistakes that may crash their business. It can be not setting up proper tax I.D.'s, getting proper financing, or not keeping good financial records. The new entrepreneur is sometimes caught up to much in the product or service and not whats going on in the office.

1. Overspending for the Business.
The start-up cash that new businesses have can sometimes be wasted on useless things. Overspending on office rent or having to many employees can eat into your initial start-up money. Your buying an expensive office phone system, network or PCs can eat up cash fast. It's best to grow slowly and space out and budget these highly expensive office costs.

2. Get Professional help when needed.
To cut costs many new businessmen will avoid hiring an accountant or lawyer. An accounting or legal mistake early on can get you in hot water with the I.R.S. or set you up for a law suit later. Professional help can help keep you out of trouble. It's like a type of insurance.

3. Pay Yourself Along the Way.
Sure you want to save money and reinvest all profits back into your business. The new businessman usually makes the mistake of letting the company pay his expenses. If Uncle Sam sees you are paying personal expenses with company money, there could be trouble. The best thing to do is pay yourself a salary and keep your business and personal expenses separate. Also make sure to keep the salary at a manageable level. No big salary at the beginning. The company will need the money.

4. Set Up A Rainy Day Fund.
As in personal finance, a rainy day fund is very important. It's your cushion from trouble . So must your company have one to. It's easy to think it can never happen to you but when you think that it usually does. Having the cash on hand to weather any storm will make you a better decision maker because your prepared for the worst.

5. Keep your Business and Personal Assets Separate.
Borrowing money from people in your personal life is a bad idea. Using your personal assets as collateral for a loan is a really bad idea. You need to consider what would happen if your business failed. You would not only lose your business but creditors would come after your personal assets leaving you with nothing.

6. Using a Personal Credit Card For Business Expenses
This is the way most new business people get into trouble. Credit cards in your name used for business. Bad move, you are on the hook if things come crashing down. You can be personally sued for their repayment. Again, don't mix personal and business. Apply for credit cards on the companies credit rating or not at all.

Many start ups today need to concentrate on making money and taking care of the office at the same time. When you are new start up you are at your most vulnerable time you can't afford not to be careful.




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2 comments:

  1. I agree with this post. There's a very thin line between personal and business expenses when it comes to business owners. They think that a very small fee using their personal accounts do not affect their business when in fact it could.

    ReplyDelete
  2. Many one man shops make this mistake. Take a wage from the company and keep things separate

    ReplyDelete

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