You may have schematics for an incredible, innovative product, or the best marketing ploys to come along in decades, but these things will mean nothing if they’re not supported by a solid, long-term financial strategy. As you begin setting wheels in motion and turning your business plan into a reality, make sure you’re not falling victim to any of these common budgeting blunders…
Neglecting Immediate Budgetary Needs
When you finally source the capital you need to get your business off the ground, it can be a very exciting time. This is the milestone where you can finally stop dreaming, and start making money from all your big ideas. There’s obviously nothing wrong with taking pleasure in this, but it’s important not to let the excitement go to your head, and lead you into rash decisions. If your business needs a ECDIS system to operate, don’t spend the money you had for it on a gorgeous reception area for your office. If you haven’t acquired an essential logistics contract, don’t blow your capital on renting the biggest billboard in town. Countless promising entrepreneurs let financial freedom go to their head, then burn through their start-up capital, and never get close to turning a profit. Don’t let yourself become one of these!
Assuming That Revenue Means a Positive Cash Flow
In pretty much every transaction, especially in a time where physical cash is becoming less and less used, there’s a lag time between a given deal being finalised, and the cash actually being collected by the business. This is an inexorable fact of business, but it’s only going to be a problem for you if you go in unprepared. Revisit your business plan, and make sure you’re accounting for any lag time and gaps in your sales cycle. This is especially true if you’re planning to set up a B2B operation. A lot of small businesses fail to take this step, and charge headlong into some costly cash-flow problems, occurring when they spend capital which they don’t have yet. One of the most tragic elements to these stories is that in a lot of cases, the purchases that crippled the business could have been delayed for a month or longer, when the money actually makes it into the bank. Take it slow! A little financial foresight can go a long way to protecting your venture!
Forgetting About the Tax Man
If you fail to plan for your taxes when you start your business, end-of-play gains can seem a lot more than they actually are. We don’t have to tell you why this can be a recipe for financial disaster! Sales tax on employee withholdings and revenues can sit in your account for a while, but ultimately, they have to go to the government. Your company’s books should never count this kind of capital as holdings, as it can lead to you budgeting for projects and expenses in the future which you can’t actually afford. Take advantage of all the deductions you’re entitled to, but plan for the taxes you do have to pay!