⏱ 3 min reading
Mistakes are human. We all make them. But when it comes to financial mistakes in your business, it’s only natural that you want to avoid these at all costs. Because the costs of a financial mistake in your business can be high. And if you’re prepared and informed, this might help in avoiding making the mistake in the first place. We’ve listed a couple of financial mistakes that can have horrible consequences when you own a business.
1. Undercharging your work
This is a painful one. Because when you’re not valuing the work that you do at the correct price, you will need to work twice as hard in order to make the same simply because you thought your price was right. So before you set your price (or when you’ve already set your price) have a good look around at the market and your competition and if you can find out what their prices are for the services and goods their offering you might find a better starting point for your own price. Simply covering your basic costs + a little margin is not enough when it comes to determining your prices. It’s vital you value your work at the right rate, and also, you absolutely have every right to value it at the right rate. Of course, it also depends on your industry, but when you undercharge your work you’re basically working that much harder which in terms of money you also could’ve made with a few clients less.
2. Tax mistakes
Other than undervaluing your work, tax mistakes can be pretty painful too. The last thing you want when starting a business is being accused of things like tax evasion. Therefore the first thing we would recommend is to get a good accountant from the start and let him inform you about all the basic necessities. If you only meet with an accountant after your first year, you will most likely encounter some problems of things you didn’t think of before which could mean you need to pay a whole lot after which you didn’t expect. That might mean you would need to unnecessarily tap into your emergency fund. Talking about your emergency fund, this is also a good one for avoiding tax mistakes. We’ve said this before, but we’ll say it again: make separate accounts and funds for your business. When you have separate designated funds for specific things this will make everything more structured, but it will also avoid walking against hurdles along the way. When your emergency fund exists from all different types of money that are also meant for something else it might make it more challenging to know how much money is saved for what. Money saved for taxes should definitely have a separate account. Because you wouldn’t want to take money from one general account constantly when you need it, only to find out there’s not enough in there anymore when the times comes to do your taxes. Having a good overview of which money is supposed to go where is key if you want to avoid these types of scenarios.
3. Not having your agreements on black and white
Now, while we believe you when you say that you had the absolute confidence in that one client when you started the work but didn’t sign the contract yet, this is something you should never do. It doesn’t matter what type of client you have standing before you. If it’s one of your best friends even, make sure that before you do any big project every party involved has read and signed the contract. If you don’t do this and just blindly trust your judgment that they are good people, they will have all the power. You can perfectly do the work and then they leave you out to dry by not paying and you can never reach them again. Legally, you will not be able to get very far because there was no signed agreement. We can’t stress it enough: no matter how good you think your instincts are, do not start a big project without having all parties signing the contract.