Common Credit Mistakes Small Business Owners Make – and How to Avoid Them
Starting a new business is an uphill battle – there are many things to consider: who your target audience is, whether or not you want to enter into a partnership with another person or business owner, how many years you plan on being in the industry, etc. With so many decisions to make, it’s understandable that some things fall through the cracks. However, you don’t want to overlook the negative effect credit mistakes can have on your company. Not only do these mistakes have the potential to be detrimental to your company’s success, but they can also become a personal financial burden.
Symmetrical Investments is here to help you! The first step is to understand common credit mistakes so that you can prevent them before they affect your business. Keep an eye out for these common financial faults, in order to keep your company stable both now and in the future.
Failing to keep financial data
Keeping track of all of your financial transactions is crucial to staying on top of your expenses. While you may be tempted to unclutter your desk by tossing away receipts and other paperwork, make sure you are retaining this information for future record. Using online record-keeping software that files your receipts digitally could save you from losing key information, all while keeping your desk organized.
Intertwining personal and business finances
Especially if you’re a small to mid-size business, it is easy to fall victim to combining your personal and business expenses, but this decision can become sticky when tax season rolls around. Think of your business as a viable entity – create a separate checking account, use a business credit card, and consider establishing a limited liability company (LLC) or an S Corp for your business.
Companies have to pay out certain things on a regular basis – inventory, employees, software licenses, and other expenditures. Businesses who get in the tendency of paying these late have a higher chance of failure. Keeping cash gaps as short as possible is crucial to avoid having to take out loans and debt that eat into profit.
Focusing only on short-term
Most businesses want to stay in the industry for years down the line, but they fail to plan properly. While it is important to focus on the initial aspects of starting your company, you must also think about future growth and the obstacles that you may face. It is important that you regulate your spending so that you have working capital for future investments.
Borrowing from the wrong kind of lenders
Exploring your borrowing options is also important to financial stability. Make sure you understand the financial lingo, such as the definition of a loan versus a line of credit. With increased understanding, you can make sure that you choose the loan solution that’s best for your company.
Credit mistakes are common in every company, but they’re not all irreversible, so take the appropriate steps to avoid them. The initial commitment to good credit practices may seem daunting, but our team of experts is here to help you with the process. Contact us to learn more.