6 Financial Mistakes New Business Owners Make

Introduction

The number of start-ups in India has grown seven-fold over the last decade, according to financial consultancy firm KPMG. With a slew of start-ups coming up every day, not every business survives the competitive market.

Every entrepreneur knows that they will have to take some calculated risks to help their business grow, but these risks may not pay off every time. Some mistakes are easy to overcome while other can lead to financial ruin. To help you avoid some of the most common errors business owners make, we have compiled a list of financial mistakes that every entrepreneur must avoid.

Mixing Personal and Business Accounts

The first thing every entrepreneur must do when setting up a new business is open a separate checking and saving account to keep track of the business revenue and expenditure.

While it may seem convenient to use the same account for both, your personal and business finances, it can create a false image of the financial situation of your business. It can give you an inflated view of the funds available and also make it difficult to ensure that you are not blowing through your budget.

Having separate personal and business accounts is necessary to set clear financial goals, meet tax obligations, calculate profits and balance accounts.

Not Having an Emergency Fund

The one thing most financial advisors can agree on is the importance of creating an emergency fund. Whether you are just starting or have been in business for a few years, a safety net is something that can help your business survive during hard times.

Irrespective of the amount of planning you do, there will always be unexpected expenses that your business incurs. A contingency fund will help you sail through a sudden financial crisis. A good estimate of the amount you should have in your emergency fund is about three months’ worth of business and personal expenses.

Making Unnecessary Purchases

With the start-up culture trend, businesses tend to have the best of everything, meanwhile it is necessary for every new entrepreneur to take a step back and take a good look at their shopping list. Everything from office space to the technology required to run the business can be acquired at lower rates with some advance planning and opting for alternatives that are more economical.

A larger office space away from the expensive business hubs, laptops that focus on functionality instead of branding and appearance, free or cheaper software and tools where possible and eliminating other frivolous expenses while setting up the office space can help you save a decent amount of money.

This is not to say that you should go for the cheapest option for all requirements. The money you save on other things can be spent on getting the best products available that are critical to the functioning of your business. Spending money on a good website or a premium spot at trade fairs can benefit your business greatly.