5 Common Money Mistakes Business Owners Make
Starting and building a new business can be one of the most exciting times of an entrepreneur’s life. Building a thriving business begins with a solid financial foundation. At Rubin Wealth Advisors, we work with entrepreneurs at all stages of their business life cycle. More than half of businesses fail within the first three years. Launching on the right footing requires solid financial planning. Below are five of the most common money mistakes new business owners make and tips on how to combat them.
Underestimating the investment (and other resources) needed to launch and grow your startup is one of the most common challenges new entrepreneurs face. Undercapitalization of a small business or not having the right equity, financing, and/or investors can stall or halt a startup in its tracks. In today’s competitive environment, it will be difficult to survive and grow a new business without the proper funding and support. Prior to launch, new entrepreneurs should have a thorough understanding of the capital they will need, their options for financing, and which choice is right for them and their goals.
All too frequently, small business owners under-price their products or services. Whether it stems from a lack of confidence or market knowledge, perceived oversaturation, fear of failure or another reason, it is a slippery slope that can have long-term ramifications if not corrected. Understanding your business’ unique selling proposition, how it separates your offerings from the competition and how to best articulate it to your target audience will help you price and market your products or services from a position of strength.
3. Lack of Budgeting
One of the most important responsibilities of a new business owner is to continuously steer the company towards profitability. Your roadmap to profitability begins with a carefully planned budget that covers your overhead, operations, marketing, taxes, insurance, and other expenses. Creating a clear budget and having the financial discipline to follow it is essential to maintaining a healthy bottom line.
4. Not Planning for Tax Obligations
As an entrepreneur receiving payments from clients or customers, you’re solely responsible for your tax liability. As the business grows, it is easy to focus on day-to-day operations and neglect tax responsibilities. However, to stay on top of your tax liability, plan to pay quarterly tax payments to the IRS so you’re not surprised with a large tax bill at the end of the year. Stay familiar with the specific taxes that will impact your business.
Startup business owners can often find themselves with plenty to do and not enough hours in the day to get it all done. If you’re looking to cut corners, this is not one of them. Set up separate accounts early – and commit to maintaining separate savings, checking and credit card accounts for your business before you receive your first payment from a client or customer. Doing this from the start will make your accounting, quarterly tax estimates, and budget cleaner and easier. Separate bank and credit accounts will help provide a more accurate picture of your company’s financial health and avoid tax penalties. Separating your personal accounts from your business accounts will also pave the way for you to reinvest a portion of the money your business earns back into the business to build a stronger future.
Owning and managing a business of any size is no small undertaking. Entrepreneurship can be one of the most rewarding career tracks – and can also be isolating for those business owners who don’t have trusted advisors in their corner with whom they can brainstorm, consult with, and get connected to professionals who can make a difference or solve a challenge.