When you start a small business, you may feel overwhelmed by the accounting and finance responsibilities and processes. If you aren’t adept in these areas, you could make some serious mistakes that have the potential to damage your business. These are ways to avoid common mistakes.
Separate Your Business and Personal Finances
Separate your business from your personal finances. In the beginning, you may be paying many of your business expenses with your personal funds. However, your company needs to build its own financial stability and record. This separation also insulates you from your business liabilities.
Build Business Credit
You should start building your business’s credit right away. Low or no credit can affect your company’s ability to gain financing. You may be denied even small loans because your firm’s credit isn’t built.
It can be challenging for you to build business credit, but spend some time finding out how the credit impacts the company and how to build it. From securing business credit cards to finding alternative lenders who will provide up-front financing. However, pay close attention to your business credit utilization ratio and keep it below 30%. This prevents you from having to use your personal credit, loans, or funds for company expenses.
Read Financial Contracts
When you are approved for a loan or other financing, you may have hidden fees or other terms on the contract that you need to know. This includes calculating the true APR so you know your borrowing cost per year. Some new small business owners overlook these features. Maybe they are more focused on paying their expenses or they are excited to build their credit, but these terms can have a dramatic impact on your company’s finances, including increasing your debt and payment amounts.
Follow-Up with Lenders
When you are denied a loan, your first task should be asking why. If you don’t know why you were denied, you cannot take steps to fix the issue so that you can secure a loan in the future. Your prospective lenders may also have other ideas, such as alternative financing options, that you may not have considered and would not know about if you didn’t ask for feedback.
Learn Lender Criteria
When you don’t know the criteria, your lender has established for loan approval, you may not be focused on the right areas of your company and its financial situation. You could apply for a loan after loan and never be approved because you don’t understand the criteria for approval and haven’t spent time building your company so that you meet it.
Do the research and work to protect your small business finances.
Speed of Light Funding understands that flexibility is essential to operational growth, which is why we offer a wide variety of business loans. We specialize in quick funding — in some cases, you can get cash within 24 hours. Once the money is in your possession, you can spend it in various ways: