Getting a new business off the ground can be hard enough without making some common financial mistakes:
1. Poor Record Keeping
You wouldn’t think this could cost money to not have right, but it can mean that your process for spending/receiving money isn’t robust and you could be leaking money. Not having proper backup for claiming expenses for tax may not only be poor record keeping, but may be hiding other issues in your financial processes.
2. Accessing Credit Cards & Debt
Finance costs like credit cards and overdraft interest don’t seem like much until they are accrued over a longer period of time. We don’t like debt for startups as you spend money you haven’t earned faster, and it takes a longer time to pay back.
3. Misunderstanding Contractors and Employees
Misunderstanding whether someone working for you is an employee or contractor for tax purposes can have a major impact on your business. Having to fix up poor system for payment of contractors and employees can also cost a lot of time and money.
4. Poor Cashflow Allocation
Not putting funds aside for taxes and other future obligations can sink a startup as payment dates can be a fair way into the future. It’s important to understand cashflow allocation so funds are applied to the right places, and you know where all your cashflow is going.
5. Justifying bad pricing in order to build portfolio
Offering some clients a lower price in order to get the work is pretty common when starting out. But the startup will need to make sure it can still keep the “lights on” while you complete this discount work, for example paying staff, operating expenses and taxes.
6. Failing to plan and follow up
Making a financial plan for your startup is a great start, but actual performance will always differ to what you plan. It’s important to review your plan to determine not only what the difference means, but also what action you need to take (if any).