It finally happened: you have found your passion and turned it into a business. You believe in what you are selling, and you will do whatever it takes to see the venture grow. Sure, you know it will take a lot of hard work, initiative, and vision, but it will also require money.
Wait—don’t let that scare you! Plenty of people have started and grown successful businesses. Some with a lot of startup capital, others with none. It is not about how much money you have to start a business with, it is how you use it.
Ready to take that next step into starting a business? Here are 6 financial mistakes that you will want to avoid when starting a business:
Mistake #1: Not using your funds strategically for starting a business.
As we have mentioned many times before: cash flow is the lifeblood of a business. While you do not necessarily need to start off with a huge financial investment into your business (sometimes sweat equity makes up for what you lack in cash!), there will be some financial cost tied to starting your business.
Making sure you use that money wisely, in a way that will foster business growth, is essential. Some of these costs can include marketing and product development. Ultimately, it is how you decide to use those funds, however big or small, that will determine whether or not you will succeed.
Mistake #2: Not keeping track of and forecasting revenue realistically.
We know that you really believe in what your company provides or sells—after all, that is why you started your business in the first place. That said, it’s important to stay realistic when predicting how your first round of sales will go. Just because you love something doesn’t mean everyone else will.
Overestimating profits that haven’t been realized may cause you to overspend on other items and dig you into a financial hole that will be hard to get out of. If your business doesn’t take off right away like you expected, that’s ok – re-evaluate your forecasts and budget your funds accordingly.
Mistake #3: Not considering and understanding taxes.
Does your business have to register for HST/GST or PST/QST? Are you a monthly, quarterly, or annual filer? Do you have to charge those taxes to your clients and/or customers? Did you know that if you charge provincial tax, you’ll be expected to pay it back to the province months later?
Most new business owners will not know the answer to these questions, but that’s okay! This is where an experienced accounting team comes in (like ours!). Knowing what taxes to charge is imperative to running a business. If you don’t do it properly, you may have to pay those taxes out of your pocket, or worse—pay hefty fines and late fees.
Mistake #4: Not knowing what expenses are eligible for business tax write-offs.
Want to write off your car as a business expense? “If you use a motor vehicle for both employment and personal use, you can deduct only the percentage of expenses related to earning income.” The CRA knows that most people do not have vehicles solely for work purposes, so it can become suspicious if you write off 100% of that expense as a business one.
Separating business from personal expenses, such as whether or not you should have a company-owned car, is a whole issue with its own complexities. At the end of the day, it is important to know what you can claim as an expense to ensure that the CRA doesn’t come knocking on your door. Any CRA audit can cost you unnecessary time and money to handle.
Mistake #5: Not knowing how to track these expenses.
Even if you have figured out which expenses are eligible, do you know how to properly track them? If audited by the CRA, a credit card statement is not necessarily acceptable proof because the CRA will want to see original receipts.
Use bookkeeping software to ensure that you keep all your records, including receipts, organized. Once you can do so, think about hiring a financial team, including a bookkeeper, to help you stay on top of your expenses.
Mistake #6: Leaving it to the last minute to hire a bookkeeper or accountant.
We know it adds to your growing business expenses to hire an accounting team when you have barely gotten your business off the ground, but it will be even more expensive in the long run if you do not consider hiring a financial expert. Outsourcing your accounting department is a cost-effective way to manage your small business’ finances and taxes to avoid costly (yet easily avoidable) mistakes in the future.
At SBLR, our seasoned team of accounting and tax experts can help you avoid these financial mistakes when starting a business and keep you on the path to success. Ready to get started and plan for this exciting new venture? Call us at 416-646-0550 or request a consultation today.