7 Money Saving Mistakes to Avoid for New Business Owners

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Studies show that 82% of businesses that fail do so because of bad cash flow management.

You may think starting a business is all about spending money the right way, but an equally important part of your business budget is your savings. Just like with your personal finances, the long term success of your business depends on saving money. 

Putting money into a savings account may seem easy enough, but there are money saving mistakes many new business owners fall into. 

Read on to learn the 7 money saving mistakes you'll want to avoid as an entrepreneur. 

1. Saving Without Intention

Where is your business going? What will that entail of your budget? Will you need new and improved equipment, personnel, and so forth?

One of the most common money saving mistakes is saving without intention. Every smart business owner understands the importance of a business plan. This business plan should be what drives your saving goals. 

This requires you to define your priorities and what success means to you. After all, you can't be successful if you don't even know what success looks like. 

Creating savings goals will also motivate you to get where you need to be faster. 

2. Saving More Than You Can

On the other hand, many entrepreneurs don't make progress with savings because they're trying to save too much. 

It may sound backward, but this is what happens. You put all of the money you can spare in your savings, and then something comes up. You make less next month or new expenses arise. 

Now you have to go back to that savings account and pull money out of it. 

This is an easy trap to fall into, but it's detrimental. It makes it difficult to manage your savings and keep track of how much you have so that you can adjust as necessary. 

When setting a budget, make sure you save enough to contribute a decent amount but not so much that it'll have to come back out.

3. Not Expecting the Unexpected

Another money saving tip to live by is to create a second savings account for your emergency funds. All too often business budgets meticulously assign sources of income without considering the unexpected. 

From equipment failures and mistakes by employees to sudden large business purchases, there's plenty that can come up. If you're not ready for it, this money has to come out of your main savings account or you end up with new sources of debt.

Your emergency fund should be a priority. Experts suggest maintaining 3 to 12 months' worth of business income in this account. 

4. Forgetting to Plan for Taxes

Business pay taxes too, but unlike employees, you have to manage them on your own. That means no more convenient W-2 telling you how to fill in the blanks. You have to submit documentation and pay the IRS yourself. 

On one hand, if you fail to do this accurately, you could end up in financial ruin. Taxes are expensive, and you need to be ready to forfeit that money. The lowest effective tax rate belongs to sole proprietors and stands at 15.1%. 

On the much worse hand, you could end up in serious legal trouble for tax evasion. At best you might just have to deal with some small IRS fees and extra paperwork on top of paying the taxes you owe. 

5. Not Tracking Your Spending

Spending and saving may seem like different entities, but the truth is that they're two sides of the same sword. What you spend effects how much you can save and vice versa. 

This is why tracking your spending is important to your business savings. When you know where your money is going exactly, it's easier to cut down on unnecessary purchases. This will allow you to reach your savings goals faster. 

It's important to note that you should reliably track your spending and never leave it to guesswork. 

6. Failing to Update Your Budget

One of the worst money saving mistakes is never updating your budget. As your business grows, the economy changes, you experience ups and downs and unexpected events, your budget should change.

Whether it's for better or for worse, you can't keep the same budget you made on day one because it's no longer applicable. You need to define new goals to strive for. 

Even if you're doing well, this is no reason to stop paying attention. If you don't stay on top of your spending and savings, you could lose it all. 

7. Forgetting to Separate Business and Personal Accounts

No matter how small your business is, you should keep your personal and business finances separate. Even if you're using third-party apps like an online ordering system to run a business with fewer employees, this still holds true.

How well your business is doing may impact your personal finances, but they need to be filed individually for several reasons. 

First of all, your business needs to become self-sustaining.

It's much easier to see how your business is doing overall when your personal expenses aren't mixed in with your statements. You need to be able to clearly assess what goes into the business and what comes out of it. 

This will also benefit you when managing your taxes and filing for deductions. The same goes for when you apply for a business loan. 

Plan for Success and Don't Make These Money Saving Mistakes

Running a business is hard enough without having the savings you need to grow the way you should and navigate unexpected hurdles. Don't be one of the 82% of businesses that fail because you didn't know how to manage your money

Avoiding these 7 common money saving mistakes is a good step towards staying on track to business success. 

If you found this article on small business money saving mistakes helpful, be sure to check our business blog for more money management tips and tricks. Visit the Finance and Startup sections of the Bootstrap Business Blog right now to learn more money saving mistakes to avoid when running a company.

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