New business owners face many challenges, and financial mistakes can derail growth quickly. Avoid these common pitfalls to keep your business healthy and prepared for growth.
Using personal accounts for business purchases makes bookkeeping difficult, complicates taxes and can weaken your legal protections. These actions can cause what is referred to as "piercing the corporate veil" which can leave your personal assets at risk during a lawsuit. Open a separate business checking account and use a business credit card to keep transactions clear.
Many new owners focus on generating sales but fail to monitor when cash is coming in and going out. Without understanding cash flow, you may not have funds available for payroll, inventory or unexpected expenses even if sales are strong. Keep up on your financial reports such as cash flow statements and know how much is in your accounts receivable.
Poor recordkeeping can lead to missed deductions, overspending and inaccurate financial statements. Use accounting software to track every expense, categorize costs and store receipts digitally to make tax time and financial planning easier.
New owners often underestimate tax obligations. Failing to set aside money for federal, state and self-employment taxes can lead to large, unexpected tax bills with penalties and interest. Working with a tax professional can help you estimate and pay quarterly taxes to avoid surprises.
Taking on too much debt can burden your business with high payments, while starting with too little capital may prevent you from purchasing necessary equipment or hiring help. Create a realistic business plan that includes startup costs, working capital needs and responsible financing options.