Many people dream of running their own business. But one thing that stops people from taking the leap is the fear of numerous financial issues. Experts say that aspiring entrepreneurs should be prepared to fail and take risks. You must be prepared to take on different financial issues along the way, including the following.
Access to Funding
Among the critical financial decisions you need to make is determining how you can get the funds necessary to finance different business needs. You may be having a hard time generating enough revenue that you need more cash to finance your daily operations. You might not have enough rainy day funds to pay for the daily expenses, so you need to find another source of funds.
There are times when buying new business equipment like heavy-duty equipment parts becomes a must. A machine suddenly gets damaged, and for a repair to be possible, you need to buy the right parts. You can only pursue the repair if you get enough access to funds to buy the materials needed.
You might also need more funds to hire new employees. When your current workforce can no longer cater to your customer demands, it might be wise to hire more staff or outsource services to accomplish business tasks. Remember that you ought to have enough funds to meet different needs.
Business Debt
Many of us fear being buried in sky-high debt. When it comes to business, there are times when debt can help you accomplish certain goals. It is also no secret that many entrepreneurs managed to start their own brand by applying for a business loan in the first place.
Even if you use your own personal credit card to finance some of your business needs, you will eventually have to pay your creditors back. Failure to pay your debts in time can lead to higher interest rates. This can eventually get you trapped in debt, with your last resort being filing for bankruptcy.
According to an article published in USA Today, the average debt of small business owners is $195,000. It can be tricky for entrepreneurs to know how much debt is too much. Knowing your alternative payment plans is the first step to repaying your business debts.
Tax Compliance
Some business owners are guilty of underpaying their federal income taxes. Sometimes, this is due to innocent mistakes like poor record keeping. Other times, businesses deliberately use different taxes like manipulating cash revenue and make uneven payments.
Failure to pay your taxes on time can lead to the IRS chasing after your business. You can end up having to pay penalties for your failure to pay your due taxes. You can even get subjected to criminal charges depending on your case.
But did you know that are also those who tend to overpay? Up to one-third of entrepreneurs believe they overpaid in their taxes and failed to claim tax credits and deductions. But then, the main issue is not underpaying and overpaying taxes but the cost of poor tax compliance.
Unforeseen Expenses
The problem with running a business is that you can never tell when you will have to face unforeseen expenses. There can be many causes of such expenses, like the following.
- Equipment breakdown
- Increase of materials costs
- Increases in rent
- Delayed client payments
- Damaged or lost inventories
- Insurance costs
- Tax payments
You may be saving for a rainy fund in case some unexpected costs occur. But there are times when your savings might not be enough to cover such expenses. It becomes a bigger issue if you encounter more than one unforeseen expense within a month.
Sticking to a Budget
No matter how great you are in making personal budgets, it becomes a different story when you are the one budgeting your business. It can be tricky to determine nearly accurate projections versus your actual cash on hand. Since your income can vary each week, it becomes challenging to set a budget and stick to it.
Budgets are necessary so you can have a calculated meaning your organization can stick to. You won’t be spending money on unnecessary upgrades, and your members will learn better when it comes to prioritizing costs and expenses. You will need to make room for flexibility while considering your brand’s accounting and business finances.
This list shows just how tricky it can be to run the financial side of a business. Tax compliance, budgeting, paying for unforeseen expenses, avoiding too much debt, having enough access to funds, and proper tax compliance are among the financial challenges of most entrepreneurs. As impossible as it may seem, many managed to overcome these challenges. You, too, can do the same.