Here at the Commercial Finance Group, we regularly interact with business owners looking for financing solutions for their business. In the past, we have written blogs offering business owners advice on how to avoid certain issues, including how to avoid mistakes with invoice factoring. While invoice factoring is a common funding endeavor for small businesses, there are multiple ways to acquire small business funding. In today’s blog, we’ll be discussing some more general financial downfalls a business owner can make and how they can avoid them altogether. Discover how to defend yourself against these financial pitfalls below.
Downfall: Combining Personal And Business Finances
Solution: Create Separate Accounts
Not creating separate banking accounts from the start is one of the most common financial pitfalls you might face, especially among new business entrepreneurs. It is nearly impossible to determine how much money your business made (or lost) if the transaction history in your bank account includes business and personal expenses.
It can also cause a major headache come tax season and you might lose out on valuable write-offs. Combining your personal and business accounts can also make you susceptible to tedious audits if the IRS believes you are deducting personal-use expenses as business expenses.
At the end of the day, keep your finances separate and rely on small business funding options like invoice factoring and asset-based loans when the cash flow is tight rather than dipping into your personal finances.
Downfall: Overspending Prematurely
Solution: Be Cautiously Optimistic And Create A Budget
When starting a business, it can be easy to overestimate profits, leading to you being over your head in debt before you know it. Fastidiously research your financial needs for starting up your business and create a budget. Investigate your competitors and find out how they started and how they become profitable. Decide what is essential now and what can be bought later.
Downfall: Drowning Yourself In Debt
Solution: Explore Your Small Business Financing Options
You have a lot of options when it comes to small business funding. Traditional small business loans often require rigid repayment and if you have a bad month and cannot make the payment, you might end up facing large fees and digging yourself deeper into debt.
Business funding options such as invoice factoring allow you to receive cash flow quickly without borrowing money.
Downfall: Not Making A Budget
Solution: Make A Budget
The solution to not making a budget isn’t rocket science. It can be easy to swipe your business credit card as expenses come up — after all, expenses need to be paid. But you need to be able to see where your money is going to be able to see where you are overspending and where you can scale back. Failing to make a budget or failing to stick to the one you made can result in accidentally tying up cash or taking out an otherwise unnecessary business loan. If you want your business to be profitable now and in the future, you have to know where your finances are going and what you can and cannot afford each month. A budget can also help you plan for major annual expenses like taxes and insurance.
Downfall: Not Having An Emergency Fund
Solution: Don’t Put Everything Back Into The Business
They say you have to spend money to make money, and that’s certainly true. But it’s also true that you’ll need cash to dig yourself out of a hole if you happen to find yourself in one. Based on your budget, determine what percentage of revenue you can realistically put into a savings account each month and stick with it. Before you know it, you’ll have an emergency fund that you can reach into when you need it without taking out an emergency loan. This helps your company to be more independent and less reliable on borrowing money.
Downfall: Forgetting To Pay Yourself A Salary
Solution: Always Include Yourself On The Payroll
We completely understand the desire to give your all to your business, but this is often not the best decision. What happens when you experience a personal emergency and only have your business account to draw funds from? This is just another reason to keep business and personal finance separate from the start rather than trying to transfer funds around when you need them. Pay yourself a fair salary. You deserve it.
Downfall: Being Soft With Unpaid Accounts Receivables
Solution: Use An Invoice Factoring Company
If your clients know that you aren’t going to hound them for payments, you’re going to be the last to get paid. While it is important to maintain business relationships with your clients, it is also important that they fulfill their end of the deal and pay their invoices. The Commercial Financing Group can help with this by offering business factoring services. We will purchase your invoices and take over the responsibility of collecting debts. There is a small percentage fee that you will pay for this service, but it can also eliminate the need for you to hire an in-house collections agent if you have a high volume of invoices moving through your system.
Downfall: Not Choosing The Best Factoring Company Work With
Solution: Do Your Research
Many business owners think that invoice factoring is too expensive. Unfortunately, there are invoice factoring companies out there that have hidden fees and wind up costing you more money than you can afford to lose. At The Commercial Finance Group, we believe transparency is key to any successful business relationship and we do our due diligence to make sure you understand your contract.
When choosing the best factoring company for your business’s needs, you have a lot of options. We appreciate you considering The Commercial Finance Group. We have been crafting custom working capital solutions for small businesses, including invoice factoring, for over 40 years. We understand the challenges that small businesses face and are here to help you find the right solution. Get in touch today to learn about invoice factoring for your business.
