5 common financial blunders and how to avoid them
When it comes to new businesses, 1 in 5 new companies will fail each year. If you don’t want your company to become one of them, you must aim to avoid various hurdles that might force your brand to close its doors permanently.
It doesn’t matter if you run a brand-new start-up or a growing medium-sized business; it is essential to protect it from potential obstacles. Learn about the five common financial blunders companies make and how to avoid them.
1. No Emergency Fund
Every small to large company must have an emergency fund to fall back on. Most brands will face unexpected expenses at some point, and the savings may keep the company afloat. Prepare for the worst by saving at least three months’ worth of overheads to quickly pay an unforeseen bill. The contingency fund will provide peace of mind that your business will not be affected by a financial hurdle.
2. Tax Mistakes
Many businesses make various mistakes when submitting their tax returns, which may lead to financial losses or tax penalties. For example, you might submit the wrong employment status for a freelance or casual employee, fail to include various business expenses in a tax return, or miss a tax deadline.
Suppose you’re worried about making one or more mistakes when submitting a business tax return. In that case, it is a smart decision to invest in chartered accountants London services for tax, accounting, and advisory support.
3. Credit Card Debt
Many entrepreneurs turn to credit cards to boost their business’s finances. While they might be a convenient way to inject money into the business, your company is at risk of significant debt if it fails to make the repayments on schedule.
As your business will have many overheads, it’s crucial to avoid credit cards, especially if your company cannot make repayments each month. If your venture struggles with financial hardship, look for ways to cover its costs, such as securing an investor, welcoming a business partner, or decreasing overheads.
4. Skipping Business Insurance
Every company is at risk of a natural disaster, compensation claim, or theft. Yet, many companies make the mistake of either skipping business insurance, choosing the wrong policy for their needs, or canceling coverage before a new insurer is in place.
Business insurance policies can protect a business from various risks, such as inventory or premises damage, legal action, supply chain breakdown, or business interruption.
5. Poor Budgeting
Businesses of every size in every industry must create an in-depth budget to manage their finances accurately. If you fail to develop a realistic budget, you might not pay an expense on schedule or forget about a major bill. As a result, your company may incur a late repayment charge or underestimate its outgoings. Protect your business’s bottom line by creating a monthly budget, which you can then compare against your company’s financial goals.
Every business owner will make some financial mistakes, but some may affect their cash flow and survival more than others. So, create an accurate monthly budget, hire accounting services, invest in business insurance, and build an emergency fund to protect your company’s bottom line.