The first few years of a new business are challenging, and it is easy to make major money mistakes that could be fatal in the future. Even though the specifics are different from one industry to another, data shows that on average, around 20% of small businesses fail in the first 12 months. There are plenty of processes that account for how well or how poorly a business operates. Most of them are related to how good managers are handling the business finances. Here are some major money mistakes small business owners make: They mix personal and business funds They make big purchases right from the start They raise money too quickly They don’t have a set budget They are financing with a credit card They spend too little When risk outweighs opportunity, entrepreneurs fail. Their willingness to take risks also makes them more likely to make mistakes. Some failures are minor, while others are big and can easily burn the house down. Below, we are expanding on the major money mistakes. Mixing personal and business funds Whether you are a solopreneur, a freelancer, or have set up a small business, you should know that keeping your finances separate is the key to balancing things. If that is not the case, you will pay the price later. To address this, you should commit yourself to creating separate savings, checking, and credit card accounts for your business before you start collecting revenue from customers. If you do this right in the beginning, it will make it much easier to do the full accounting for your business, as well as plan for the tax returns and budget for any unpredictable months. Most importantly, you should separate your business and personal accounts just so you have a better psychological way of thinking about your business and how it factors into your life. Immediately making big business purchases for the business We all know how motivated you are to get the best equipment, technology, inventory, and marketing for your new business. However, everything comes at a price, and if you are itching to make major purchases in the beginning of your business, you should think about these decisions very carefully. For example, spending too much on your website or renting a flashy office feels good, but are mandatory depending upon the type of the business you are in. You need to ask yourself if the expense is going to help you generate more revenue in the short-term. If it is not that important, you should probably rethink it. If you are overpaying staff members, you should look for alternatives. Platforms like Upwork or Linkedin ProFinder are full of talent that may be cheaper than your current full-time employees. You can grow your business first and accumulate some cash before spending on top-tier employees. Raising money too quickly If you are in the venture capital business, getting much funding from the start can cause a problem. There are many reasons for this: You may be tempted to splurge, only to find yourself without much cash down the line Too many investors can spoil things quickly, and each one of them thinks differently about how you do business In the first year of business, you will learn a lot of things and find potential opportunities you never thought about before – spending early will leave no room to make adjustments Your business could turn out to be successful even without that much venture capital. Eventually, raising money too quickly will only make investors own more of the company than necessary, which would also cut your profits every year. Instead of doing that, you should maybe consider setting up a staged series of funding offers and start with just enough to get rolling. Then, increase when you see potential expansion opportunities. Not having a budget You can run your business without a clear financial plan, but you will find it difficult to estimate how much you bring in and how much it would cost you to get it. Doing this will put you on the road to nowhere, forcing you to plan nothing but how to fail. On the flip side, a clear plan that is based on your best information is the only way to move towards profitability. You should set a handful of staged budgets, where each budget would be allocated to a stage of your business. Alternatively, you can hire a consultant to estimate your expenses or seek out financing if you cannot make ends meet. Financing with a credit card Almost every business experiences times when they need more money than what they have on hand. When this happens, most business owners make the mistake of using their credit cards to make up the difference. The interest rates on credit cards versus loans or other sources of funds translate to paying far too much for the money you spend. At best, the profits will cover the cost quickly but you will lose vital earnings in the first year. At worst, the balance will stay put and accrue interest, increasing the amount of profit that you will need to support your spend. To avoid this, stay on top of your estimates and look for alternative solutions for corporate financing, such as a line of credit . Find an online lender with good rates and seek out a loan instead of using your credit card. Spending too little As you could see above, spending too much in the first year or so is a problem for businesses. However, on the flip side, spending far too little is also challenging for your long-term success. While flashy and tempting extras can wait until you’ve made some profits, there are some vital expenses that you should consider making to put your business on a faster road to success. For example, you can spend more on your marketing, invest in excellent staff, make excellent customer service possible, etc. In short, you should know what investments will give you a great return and budget for them accordingly. Plan your budget, track your expenses and save for emergencies. Keep the line between your personal and business finances clear, and always think about your expenses and their potential to generate future revenue. We hope our expert team can help you realize and prevent some of the common small business mistakes!