There are approximately 30.7 million small businesses operating in the United States. Many of these businesses repeatedly make the same financial mistakes. In fact, financial problems are often one of the key reasons why small businesses fail within their first few years of business.
The good news is by identifying these common financial issues, you can better prepare yourself and your company. Here are some of the most common financial problems small businesses face and what you can do to protect your company.
Spending Too Much Too Soon
Success in the business world requires expansion and expansion demands spending. Unfortunately, too many small businesses try to spend too much at once and end up in financial straits.
Remember that slow and steady wins the race. Try to grow by no more than 10% every quarter to avoid overspending. Make sure that every dollar you spend on growth has an upside and minimal downsides, such as boosting your computing speed.
Overspending on Taxes
Did you properly structure your taxes when you started your business? Many small business owners do not classify their business correctly or create a structure that is too costly. As a result, they pay too much every tax season.
Classify your business as a sole proprietorship if you are the only owner and an LLC if you are slightly bigger. Avoid classifications like corporations or partnerships early in your career, as these structures will pay more tax every year. Talk to Nexagy’s CFO services to learn more.
Ignoring Your Credit Score
Businesses are legally classified as individuals, and as a separate entity, your business has a credit score. Unfortunately, too many business owners do not realize this fact until it is far too late.
Regularly check your company’s credit score (soft inquiries will not impact your rating) and take out a few lines of credit. A few business credit cards can help here, as long as you regularly use and pay them.
Neglecting an Emergency Fund
Emergencies strike small businesses all the time. The best of these firms have an emergency fund on which they can draw to avoid financial ruin. However, if you do not have an emergency fund, you may find yourself in real peril.
Put a bit of money into your emergency fund every month during your first year or so of operation. You need to have at least 2-3 months of operating costs in this account at all times.
Get Financial Help Today
If you need help correcting these problems or have made other mistakes that have impacted your company, contact the CFO services of Nexagy today. Our professionals will give you the help you need.