Your Business Finance: Here's How You Can Avoid The Most Common Pitfalls.

Your Business Finance: Here’s How You Can Avoid The Most Common Pitfalls.

Obtaining capital used to be confined to high-interest bank loans and, on rare occasions, venture capitalist generosity. Trying to start your own business may be a demanding and difficult task for many aspiring entrepreneurs. You are not only trying to get your brilliant idea off the ground but also having trouble raising the funds needed to make it successful.

Thankfully, the internet has revolutionized the way businesses obtain funding, There is now access to a range of funds. 


As simple as it is to raise funds in today’s world, managing them is one of the most difficult tasks, especially for young entrepreneurs. Here are some tips for avoiding the most common financial pitfalls that even the most prepared entrepreneur can encounter:

Unless it’s absolutely required, don’t put too much money into your firm.

If you are starting a business with cash reserves, credit cards, or savings, try to avoid some of the overinvestment traps that young entrepreneurs fall into, such as an overly expensive office and computing systems. 

Instead, concentrate on creating a good product and a positive customer experience. You can also start your business at home or online as both are low-cost ways to avoid some of these pitfalls. You should also make sure to purchase products that your company may require, at a fair market value.

Get financial guidance from a professional.

When you’re new to business, it’s easy to cut corners, but getting expert help from an accountant or tax advisor can go a long way toward ensuring you’re in compliance with tax regulations and avoiding a common tax mistake – paying too much tax!

A consultation with an expert does not have to be expensive. In fact, most tax franchises will provide you with a free initial consultation and advice. As long as you come prepared with the right questions, this is often all you need to get started.

Take into consideration your debt-to-income ratio.

This is challenging, especially for young entrepreneurs, especially when you are repaying loans. Maybe you have the projected income to repay the debt, but your chances of obtaining a business loan are already greatly diminished. In this case, focus your efforts, if possible, on repaying all of your personal debt before starting a business or as early as possible in the process. Even if you don’t need financing right now, you may need it in the future to relieve a certain burden and keep your personal credit score in check.

Read also: Why you need to invest in Conversation Intelligence

Establish a Cash Reserve

Personal cash reserves are an important decision to make before commencing any new business. The costs of starting a business are sometimes not high, but there’s a good chance you won’t start making a profit right away, and you’ll always need to set aside money for taxes, irrespective of your profitability.

According to SCORE, you can start by building a six-month cash reserve>

First, you add up all your monthly expenses to determine your true personal expenses.

If you still have a day job? Set aside 5% of your net pay each pay period to build your savings. Just basically have a savings goal you work towards.

As an entrepreneur, you want to make certain that whenever you take a cash withdrawal from the company, you set aside money for tax purposes. Don’t be caught off guard by a hefty tax bill later on.

Begin right now. The most important thing is to establish a weekly savings habit.

Keep your personal and business finances separate.

Separating your personal and corporate funds not only gives your company legitimacy, but it also lowers your personal liability and makes it easier to manage your taxes, invoices, and other obligations.

While you don’t need a separate company bank account, having a set-aside business bank account where you deposit a percentage of your income to ensure you can handle your tax responsibilities is always handy if you plan to make quarterly or yearly projected tax payments. Here are some pointers on how to choose the best bank for your small business.

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