Updated: Aug 11, 2021
With more Americans seeking greater independence through entrepreneurship and small business ownership, understanding the world of business finances is a must. While most people have some experience managing their own money to pay bills and save for large purchases, business finances can be more difficult to navigate. Things like predicting and accounting for fluctuating profit margins, managing wages, and determining the best ways to reinvest back in your business are important for your ongoing success. Here are some basic finance factors all small business owners should consider.
The Costs of Running a Business
Some first-time entrepreneurs make the mistake of getting into business without fully understanding all it entails. While all business ventures come with a learning curve, taking the time to do proper research and fully prepare for what starting a business entails helps to ensure your long-term success. This includes considering all financial factors involved in the day to day operation of your business such as:
Equipment and maintenance
Rent or mortgage
Electricity and water
Waste management and maintenance
Employee wages and hiring costs
Beyond these operation costs, other financial factors to consider while business planning includes:
Trademark and copyright fees
Permit and licensing fees
Preparing for Rainy Days: Avoiding Common Financial Mistakes
Your first year in business is notoriously challenging. Being financially savvy and properly managing your funds is crucial to navigating the uncertainty of this time period and creating a thriving business. Even experienced business owners can make these common financial mistakes and find themselves struggling to recover.
#1: Failing to Reinvest
The key to sustainable growth for your business is learning how to reinvest your profit wisely. Even the smallest companies managed from home need to be mindful about how they use profits to support further growth and success. Failure to reinvest in your business can quickly lead to operation costs that exceed income or leave you unable to cover sudden, unexpected expenses.
Some common places to consider reinvesting your profit include:
Employee education and training
Upgrading equipment and technology
Savings toward business taxes & upcoming expenses
#2: Attempting to Do it All Yourself
Working with an accounting professional and financial advisor not only reduces your stress and anxiety about your financial future, but also helps to ensure your business is on track for growth and lasting success.
Small business owners often have to wear many hats, but a financial advisor should not be one of them.
#3: Not Protecting Your Interests
As a small business owner or entrepreneur in any field, protecting your interests is key to avoiding devastating setbacks down the line. This includes ensuring you have the proper copyrights and trademarks in place for all physical and intellectual properties and securing proper licensing and permits where necessary. Adequate record-keeping and contracts which are clear and comprehensive can also safeguard you from potential legal headaches.
Business advisors like our team at DesCPA have the education and years of experience to help you achieve your goals and more. We offer services to meet all of your needs, including forensic accounting, tax preparation, and strategic financial planning. Contact us today for your free consultation to see how we can help you.