The pandemic has seen the rise of many small online businesses in the UK, with more than 85,000 businesses launching online stores or joining online marketplaces in the last four months, according to new research from Growth Intelligence. However, one in five of these small businesses have not had any emergency COVID-19 help during the pandemic.
With so many businesses missing out on financial aid from the government, it is more important than ever to ensure that your business is financially stable. That’s why we’ve outlined five common financial mistakes small businesses make when first starting out.
Not Setting a Clear Budget
You may be able to run your business without a clear budget or business plan temporarily, but you’ll have a hard time finding success without at least a rough budget to help guide you on what you can and cannot afford to spend each month.
As founder and manager, you want your business to be successful in both reputation and profit and you can only do that with a carefully planned budget for operational, marketing, and other expenses. Setting a clear budget helps you to increase your financial discipline and creates a clear pathway for your business to grow.
Not Having Separate Business and Personal Accounts
This is a big one. Even if you are the sole employee of your business, it is important that you keep your business finances separate from your personal finances.
While it may be convenient to use a combined account, you should commit yourself to creating separate savings, checking, and credit card accounts for your business. Doing this right, from the beginning, will make it much easier to do the accounting for your business, plan for growth, and budget for unpredictable times that may lie ahead.
Neglecting Business Insurance
Having the right business insurance is crucial for your company, as it eliminates financial risk from unforeseen events. Unfortunately, many small business owners (SBOs) make the mistake of canceling their coverage before having a new policy in place, or not choosing the policies that best fit their business’s needs. This could cost them deeply in the future.
Not Knowing The Rules
Over time, you’ll find yourself becoming familiar with much of the legislation in relation to tax and accounting for businesses in the UK. But most SBOs start out with a rather vague idea on things like VAT Return deadlines, what costs to include, and when to file accounts.
That’s why, in the early days of your business, it’s a good idea to get professional advice from an accountant to help you navigate the various minefields. With a good accountant by your side, you won’t feel you need to know everything right from the start, and it can provide you with time to get to know the ins and outs of business finance.
Being Unprepared For A Rainy Day
Is your business prepared for a rainy day? Rainy days for your business can impact your inventory, your vendor payments and worse still, your customers. Most small business owners don’t think about rainy day funds, especially when their business hasn’t begun to make a profit. But that’s precisely the reason it should be built into your budget from the start.
You shouldn’t feel overwhelmed about starting a savings account. Keep it simple and treat it as a regular monthly expense for your business. This way, you can slowly build a reserve that will help your business stay afloat. Most experts advise that six months of operating expenses is ideal for an emergency fund.
For further information, or guidance on your own business finances, get in touch with our team today. We’re always happy to discuss the accountancy services we offer that can help your business to thrive!