Many small business owners are used to making calculated risks and bold decisions. While risks are an important part of being an entrepreneur, it doesn’t mean you should be willing to be careless and take any risks. As accountants for small business owners, we often come across some common financial mistakes business owners make. To help ensure you don’t repeat those mistakes, we have listed some of the most common ones, and how to avoid them.
Having One Account For Business and Personal Finances
Even if you’re only just starting out as a freelancer or self-employed person, and are not employing staff yet, it is really important that you keep your private and business finances separate. Doing so will allow you to have a clearer picture of your business and personal finances, and when you have to file your tax return, it will help avoid any confusion. If you’re operating as a limited business, it’s a legal requirement that you open a separate business account.
Not Setting a Clear Budget for Your Business
We’ve talked about the importance of setting up a business plan before, and an essential part of that is a thoroughly researched business budget. This will help you allocate funds properly for different business activities, and it will also allow you to avoid unnecessary expenses.
Making Large Personal Purchases
Even when separating personal and business finances, it may happen, especially when first starting out, that you need to use your personal funds to cover a business expense, such as new tech or professional equipment. Buying a brand new car or a new house at the same as starting your business is rarely a good idea. Ideally, you should wait until your business is making consistent profits before making large purchases. You need to think about what would happen in the case of a monthly mortgage, for example. If your profits aren’t as high as they used to one month, how will you cover your fixed bills such as your mortgage? This is why it’s important to take into account that your main source of income is not stable in the early days of starting your business.
Not Planning for Upcoming Tax Obligations
Finally,one of the most common mistakes business owners make is not allocating enough funds to cover the tax return owed to HMRC as well as other business taxes. There are multiple ways to calculate what you owe in taxes, but specific circumstances may vary. We suggest speaking with one of our accountants at the Kelvin Partnership to get specific tax return advice for your business.
If you would like personalised accounting and business advice, please get in touch with us, one of the experts accountants at the Kelvin Partnership will be happy to help.