During those first few months in business, you must do everything you can to protect your business finances. This is to avoid a potential financial disaster should you not make a profit straight away, so it pays to be wise.
There are all kinds of financial pitfalls you can fall into, and these include the following. If you can avoid them, you will stand a better chance of survival during that all-important first year in business.
Pitfall #1: A loan you can’t afford
If you need to take out a loan for your business – and many people do – you will need the financial ability to pay it back. If you find yourself in arrears, you will then have the burden of interest fees and other charges, and the potential need to take out another loan to make your existing payments.
If possible, try to fund your business without a loan. There are some ideas in the linked article, so have a read and consider your options. If you do need to take out a loan, be diligent about shopping around. Look for the loan with the lowest interest rate, and research the lender in question to ensure you are getting the better deal.
Then do what you can to cut costs in your small business. The more money you can save in the early days of your business, the more you will be able to use to pay off your loan. Shop around utility providers, suppliers, and outsourced firms, and opt for the better deals. And resist the urge to spend on items you don’t need straight away, or look for second-hand options for the things you do need. The money saved can go towards your loan, and it will prevent the need to take out another loan should you ever experience a loss of income.
Pitfall #2: Days off because of sickness
What happens when you’re too sick to run your business? If you were to work for a regular employer, you would usually be allowed sick pay. But being self-employed, you wouldn’t have that same protection. Your savings might suffice in the short-term, but if you had to take time away from your business in the long-term, your personal and business finances would soon dwindle. And especially during the early days of your business, you might be in a very precarious position if hadn’t yet had the opportunity to bring a lot of money in.
This is where insurance comes in. As a self-employed person, you are entitled to a range of insurance types, and these can protect you should you ever fall ill. Long-term income protection insurance, critical illness cover, and disability insurance are just some of the insurance types that are available to you. In some cases, you might find an insurance product that is tailored to the type of business you have opened, such as this disability insurance for veterinarians.
Other than insurance, you might also consider hiring for your business. This might be something you do anyway should you need extra pairs of hands. If you were ever away from work, you would then have somebody to cover. Alternatively, have a temp agency on speed dial, or find out who you could outsource to in an emergency.
These are just two financial pitfalls but there could be others. Still, by following good financial habits, such as saving money and finding ways to reduce expenses, you should be able to avoid a worrisome financial disaster.