It’s impossible to set up a business without at least a frisson of fear. Whether you’re looking to refine a service or product, ploughing time into research and development or setting up your five-year plan, it often takes many months, even years to get off the ground.
All the hard work needed to get a business running could be unravelled by simple financial mistakes. There are a number of common mistakes that new business owners are likely to make. Here’s a few of them – and what to do about them.
Keeping incomplete records
It sounds obvious, but it’s easily missed during the first frantic months of a new business. Cash is king for any new business, particularly in the earliest stages. It’s vital to keep appropriate, ordered and accurate financial records so that you can clearly understand what’s going on with your cash.
Don’t fall into the trap of neglecting financial management in lieu of more immediately interesting tasks like marketing, PR and product development. Don’t forget that you are legally obliged to file accounts and complete tax returns.
Just as important as the financial penalties you could incur, the long-term success of your business relies on a realistic and achievable financial model. Your records don’t have to be complicated or fancy, just something that is always kept up to date.
Always be realistic
In the first exciting months of starting out, you need to be optimistic about the success of your business. If you weren’t then you’d never even get started. However, finances are the key exception to this optimism.
Don’t take for granted that you will succeed financially, and don’t over estimate projected expenses and revenue. Generally everything will cost more than you think and take longer to complete. Keep any projections realistic and based on fact, not what you’d like to happen.
Similarly, it can be tempting to decide never to pay yourself (or at least not for a long time). This will only give you a false idea of when the business should break even – you must budget for your own salary to ensure you can keep the business going.
Understand rules and regulations
You may only have a rudimentary understanding of financial legislation that relates to tax. You may know some of the basics but you probably don’t know everything. It’s advisable to get professional advice in the early days so that you know what you will be dealing with.
Putting the time in to understand what’s expected of you as a business owner will pay off long term. If you have good accountancy advice available to you then you won’t need to know absolutely everything from the outset.
Get your expenses in order
Often, starting up a business will mix in with existing employment and your social life. You must make sure your business expenses are kept separately, so that you don’t claim for non-business expenses by mistake.
Research what you are allowed to claim for by looking on HMRC’s website, or asking your accountant.
You must also ensure that legitimate business expenses are recorded clearly and accurately. It’s easy to let smaller purchases fall by the wayside, but these could reduce your future tax bill when you come to make a profit.
Delegate if necessary
While keeping on top of the base numbers is possible, keeping track of every expense and invoice probably isn’t the best use of your time. Managing the books should be delegated as soon as possible, leaving you free to concentrate on other aspects of your burgeoning business.
This is especially the case if you’re not adept at keeping track of tiny details. A reliable and efficient bookkeeper need not cost too much and can take a lot of the stress away. As soon as your business can support outsourcing finances, it’s definitely something to consider.
