So, you’ve started a small business. You might have experience, or be starting your first venture, but the fact is that somewhere down the line you’re going to make mistakes.
Some errors will of course have a higher consequence than others, because ordering the wrong shade of mouse mats doesn’t hold quite equal significance as finding you’ve neglected to complete your company’s accounts for an entire year.
But despite the size of the issue, the most common mistakes are the ones concerning your finances.
To help you out, here are some of the most common financial pitfalls small businesses encounter in their first year; and how you can avoid them.
Having the wrong business structure
The first thing you’ll need to do when setting up your small business is decide on a business structure that suits.
Sole trader, limited company, limited liability partnership, contractor – and that’s just the beginning. If you’re feeling daunted, know that the most common structures for start-ups are sole traders and limited companies.
Learn about each and know exactly how each one operates before you decide which is for you.
Although having the wrong business structure isn’t the end of the world (you can change it further down the line if you need to) it does help to start off on the right track.
Get your structure sorted so you can be as tax efficient as possible, and avoid any company closure fees.
Not preparing for growth
Your first year of trading will go one of two ways. You’ll start expanding before you’re ready (see below) or you’ll get caught in a whirlwind of exponential growth that evades you at the same pace Road Runner does Wile E. Coyote.
Get prepared for quick growth by having a flexible business structure that suits your industry, a strategy in place and an eye closely monitoring the rate that your company is growing at.
Expanding before you’re ready
On the opposite end of the scale is those of us who jump the gun and start buying the fancy offices and shiny equipment before we really need it.
It’s great to be prepared, sure, but it’s also vital you put money into the areas where it’s actually needed.
So before you flash the cash at that ergonomic organic Fairtrade office chair, ask yourself “Do I really need this?” If not, save it for a rainy day.
Failing to keep accounts up-to-date
Data entry might be boring, but where would we be without it? You certainly wouldn’t be aware of your business’ finances, and you’d also have a very unhappy accountant to answer to.
Keeping your accounts up-to-date is part of business practice 101. If you don’t have time to do your own bookkeeping you can outsource to an accountant, but you will still need to provide the necessary receipts and paperwork in order for the accounts to be accurate.
Only speaking to your accountant at tax time
While we’re establishing that it is not wise to bury your head in the sand, here’s another tip.
If you’re paying for an accountant, it’s a fine idea to make the most of them. Rather than dumping a bin bag of paperwork on their desk once a year, strengthen your business relationship and give them a call every once in a while.
That doesn’t mean you need to have a catch up twice a week, unless you’re being investigated by HMRC, in which case, plough on.
If you’re not being investigated however, you should touch base with your accountant at least several times throughout the year to ensure there are no anomalies in the finance department.
Not to mention that accountants can actually be a handy source of business information, and will be able to give you valuable business advice.
Have you been caught out by a common financial mistake? Did you overcome it, or did your business suffer? Leave us a comment below telling us your experiences.