Running a small business can be a rewarding and empowering choice that provides a lot of financial and personal freedom. However, many small business owners fall into financial traps that can prevent them from enjoying sustainable, scalable growth.
1. Mixing Personal and Business Expenses
Effective account keeping is one of the crucial factors to keep any business solvent and scalable. As a small business owner or sole trader, it is easy to muddle personal and business expenses. This can make your bookkeeping a living nightmare come tax time, where precious time and money will be wasted sifting through your bank statements and receipts to separate your business expenses.
A simple solution can be to create a completely separate business banking account. Most financial institutions will allow you to open a business banking account provided you have a valid ABN and tax file number. You can then use your business banking account for all relevant transactions, making business expenses easy to identify.
2. Hiring Too Softly
Hiring staff based on personal connections saves the time and hassle of the recruitment process in the short term, but it can have devastating consequences for your business in the long term. Your team needs to have a robust, talented skill set that can propel your business forward, and finding this takes considerable time and effort. Professional social media platforms like LinkedIn can be a powerful tool for small business owners – you can network and find people with the right talent and leadership skills to truly make an impact on your brand and business culture.
3. Borrowing Too Much Too Early
It’s a common mistake to make – small business owners become so caught up in the ‘big picture’ of growth that they borrow too much too early and end up a slave to repayments when sales targets aren’t met. The key is to be realistic about your sales projections and prepare for the worst. Try to avoid borrowing too much in the early stages if possible. Many startups begin with barely a few thousand dollars, while others look for initial investors to help get their show on the road.
4. Being a Jack-of-all-trades
In the digital age where small business owners not only need to be involved in the day-to-day operations of their business, but are expected to have a strong social media following, an optimised website, an active blog and a robust PR and marketing strategy, it is easy to become overwhelmed and lose sight of business priorities.
Outsourcing is becoming more and more vital to businesses that are going digital. Websites such as Elance, Upwork and Fiverr can help you find affordable and highly skilled freelancers to tackle tasks such as making website tweaks and building e-commerce platforms for your business, which can save you significant time and money – especially if you are not particularly tech-savvy.
5. Forgetting to Plan for Retirement
With the pressures of keeping a business afloat, managing marketing, accounting, production flows and leading a team, it is common that small business owners push aside long-term realities like planning for retirement. Superannuation contributions can be easily set up with your super provider, and the earlier you plan, the more peace of mind you have when you decide to retire. Equally, a solid succession plan needs to be in place at least five years prior to you deciding to leave your business, should you wish for your business to continue after you retire.
Keep these pitfalls in mind when getting your business off the ground to stay on the path to success.