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The financial mistakes a small business can make in their early stages

Joining the ranks of the UK’s 5.4 million small and medium-sized enterprises can bring mixed feelings. While the pull of freedom from demanding bosses and the allure of achieving your dreams is strong, the sudden financial responsibility on your shoulders may put you off. Below are some of the errors that small businesses make when they are starting as well as tips on how to avoid them.

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Over-paying and over-hiring

Nobody wants to be seen as close-fisted when it comes to paying wages, but it’s important for the long-term financial health of your business to pay people in accordance with their skills, experience and responsibility. If too much of your cash flow is directed towards salaries, then you could end up having to make people redundant or even close down your business.

The same goes for the number of people whom you hire. Make sure that you wait until you have a consistent, decent revenue stream before you decide to hire, and only choose people who will be a help to your business. The golden rule is this: only pay for what you need to grow your business and achieve your goals.

Forgetting about reserves

 As most entrepreneurs will tell you, unexpected circumstances can creep up on you when you least expect them. It’s prudent to keep some cash in reserve just in case you need to spend it in a hurry in order to save your business from adverse conditions such as a drop in demand.

Not checking for what you’re owed

Due to the way that payment protection policies were sold in the past, you may not even know that you have insurance cover. If your small business ever hits a rainy day, then that cash source could become vital. For example, if you had Lloyds PPI, then you could be entitled to thousands of pounds associated with products such as loan insurance and credit card repayment protection insurance. Hopefully, your small business will work out just as you dreamed. However, it’s crucial to plan for the worst possible outcome as well as the best, so finding out what you’re entitled to is a wise move.

Not keeping records

You many think that bookkeeping is boring, but it is an essential task. When it comes to paying your taxes to HMRC, you’ll be thankful that you kept a detailed list of every item of expenditure and income as well as receipts and invoices. It will make it much easier to work out how much tax you owe, and knowing in advance how much you’ll need to stump up to the taxman will also prevent payment problems further down the line.

Starting a small business can feel both exciting and daunting at the same time. To protect your business and enjoy your entrepreneurship, remember to check what you’re owed, plan ahead to cover your back and stay aware when it comes to your spending.

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