6 Financial Mistakes to Avoid When Starting Your Own Business

By Miranda Marquit

Starting your own business: it feels like a dream come true.

You can be your own boss, and live your dream lifestyle. Once you start actually working on your business, though, you find out quickly that it’s not always sunshine and rainbows. You work long hours and sometimes you feel like everyone else (customers, clients) runs the show.

In the end, it’s worth for some of us. I love the freedom that comes with running a business. However, you always have to be on top of things when you’re starting your own business — and that’s especially true when it comes to your finances.

As you move forward with your dream of owning a business and being your own boss, here are six financial mistakes to avoid:

1. Not Having an Emergency Fund

Before starting your own business, you need to make sure your personal finances are covered. Do you have an adequate emergency fund? Now that you don’t have a regular paycheck, you need to make sure you can cover your basics until your business is profitable.

You’ll need to make sure you can cover your healthcare needs, buy groceries, and take care of other expenses that pop up. It’s not just a walk in the park. You need that emergency fund before you start.

2. Mingling Personal and Business Assets

When first starting your own business, it’s tempting to just put everything in one big pot. Your personal and business assets and expenses become mixed up. It feels like they should be the same because your business is probably taking over your life.

However, you need to make sure they stay separate. The IRS expects you to make an accurate accounting of your business income and expenses, and bookkeeping is just easier when you keep things separate from the beginning.

3. Moving Into an Office Too Quickly

In a world where telecommuting is increasingly accepted, and where technology allows us to do amazing things from our phones, it’s important to be careful about moving into an office too quickly.

Commercial space can be expensive, whether you rent or buy. If you can keep costs for your business low by keeping things in your home, or by managing a remote team, that can make a big difference.

Don’t feel like you have to move into an office to be “legit.” Save your money and use it to build your business. Don’t move into an office until you absolutely must.

4. Borrowing Too Much

At some point, most business owners need to borrow. Starting your own business comes with expenses. There’s nothing wrong with getting a business loan. In fact, the interest you pay might be tax-deductible.

However, you need to be careful about how much you borrow. When you borrow too much, you run the risk of being unable to quickly pay your obligations if times get tough. Plus, you could lose the business.

Carefully consider how much you need. Just because someone will lend you a bunch of money doesn’t mean you should take it. Borrow sparingly, and look for savings where you can.

5. Buying Nice-to-Haves

We like to look successful. Unfortunately, that can mean spending on things that are nice to have, even if you don’t actually need them. If you’re starting your own business, you’re probably operating on a shoestring. Don’t buy a souped up computer if you don’t need it. Think it would be nice to have the latest gadgety thing for your business? You probably don’t need it at all.

Do a basic personal finance exercise to determine the difference between needs and wants. Avoid the nice-to-haves until you are solidly profitable.

6. Not Paying for the Right People

Yes, you need to save when starting your own business. But there are some things you shouldn’t skimp on. A good accountant is a must. If you are building a team, look for people who are passionate, and look for ways to make sure they get paid what they’re worth. There is no substitute for quality. The right people can help you build your business and lead to success down the road.

Provide benefits, or other perks if you can’t pay a ton. Look for ways to make the right people feel valued as part of your team. If you need to skimp on office space so you can hire the right people, do it.

Starting your own business comes with challenges and opportunities. Make sure you are on top of the situation and make smart money choices to increase your chances of success.