You’ve found your passion and made it into a new business. You believe in what you’re selling and you will do whatever it takes to see the venture grow. You already know that it will take a lot of hard work, but, often, starting a new business requires more than just initiative, vision, and hard work – it requires money.
Wait, don’t be scared off! Plenty of people have started and grown successful businesses – some with a lot of startup capital and others with none. It’s not necessarily about how much money you have to start a business with, but a lot more on how you use it.
Ready to take the next step into starting a business? Here are some financial mistakes when starting a business that you’ll want to avoid:
- Not using your funds strategically for starting a business.
Cash flow is the lifeblood of a business. How will you fund your venture without, well, funds? You don’t necessarily need to start off with a huge financial investment into your business; sometimes sweat equity makes up for what you lack in cash. That being said, there will also be some sort of financial cost tied to starting a business, so making sure that 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’s how you decide to use those funds, however big or small, that will determine whether or not you will succeed.
2. Not keeping track of and forecasting revenue realistically.
We know that you really believe in what your company provides or sells — afterall, that’s why you started the company in the first place, but 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 on 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.
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 people don’t know the answer to these questions, but an experienced finance team would (Don’t be shy – ask us!). 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 own pocket.
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 don’t 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 on its own. At the end of the day, it’s important to know what you can 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.
5. Not knowing how to track these expenses.
Even if you’ve 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 a bookkeeping software to ensure that you are keeping your records, including your receipts, organized. Once you have the capacity to do so, think about hiring a financial team, including a bookkeeper, to help you stay on top of your expenses.
6. Leaving it to the last minute to hire a bookkeeper or accountant.
We know it can be costly to hire a finance team when you’ve barely gotten your business off the ground, but it will be even more expensive in the long run if you don’t consider hiring a financial expert. Outsourcing your finance 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 Qmulus, we offer customized service plans for every client, because we know every business has unique needs. Better yet, with our plans, the fees are the same month-over-month, so you don’t have to worry about being be hit with an unexpected bill. Backed by the CPAs at SBLR LLP, not only can we help you avoid these financial mistakes when starting a business, but we can also develop a comprehensive business roadmap for your company to set you up for, and maintain, your success.
Ready to get started and plan for this exciting new chapter? Call us at 647-476-2145 or schedule an appointment with us.