Businesses of every size encounter different problems. But there’s a set of unique challenges when you’re starting a new small business. Among those obstacles, the ones often most difficult to beat are financial in nature.

Unsurprisingly, around 20 percent of new businesses don’t survive within their first year of operation. Meanwhile, merely 25 percent of these businesses make it to the 15-year milestone and beyond.

With that in mind, it’s crucial to equip yourself with financial strategies and tools. Doing so can help you set up your new venture’s direction and goals to succeed. To start with, read on to know the common financial hurdles that startups commonly face and how to overcome them.

What Are the Financial Hurdles Startups Commonly Face?

Experiencing financial hurdles is inevitable, especially when starting a new business. But knowing what lies ahead can help you maintain your startup’s financial stability and profitability. Thus, before you embark on your new venture, prepare for the following financial hurdles:

Mixing Business and Personal Finances

Figuring out how to manage your startup’s income and expenses is one of the many things you should consider when starting a new business. Some entrepreneurs prefer to mix their business and personal finances because they don’t want to incur extra costs for maintaining separate accounts.

Unfortunately, commingling business and personal finances leads to more financial problems down the line. It’s more challenging to monitor expenses, which can make your taxes more complicated. The ease of not separating your business and personal finances can be tempting when you’re launching a startup. But think about its long-term repercussions.

Insufficient Cash Flow

Cash flow is a primary financial concern for many startup owners. In the early stage of any business, it’s often hard to generate enough sales for a positive cash flow.

Many startups fail due to cash flow problems, which typically happen when there’s insufficient money to cover payroll or other operating expenses. Highlighted below are the three cash flow problems that new businesses commonly face.

• Lack of regular customers
• Significant startup initial costs
• Unplanned spending and inefficiencies

Limited Access to Capital

Every business needs capital to operate and grow. However, startups often have limited access to capital, which prevents them from taking on larger projects. With limited track records, lenders and investors are often cautious about extending and investing money in startups. It’s the primary barrier that entrepreneurs face when launching a startup.

Costly tax mistakes

Startups are also vulnerable to costly tax mistakes. With limited knowledge of tax matters, startup owners tend to focus on developing products and services. They are also often unaware of the tax credits and incentives available for their new business. Some may end up paying more taxes because they don’t file their taxes on time or make mistakes on their tax return.

How Can Startups Overcome These Financial Challenges?

With the right mindset and strategies, startup owners can put themselves in a more advantageous position and overcome the financial challenges of operating a new business. Many reputable and trustworthy online lenders, such as CreditNinja, offer the following financial tips:

Open a Separate Business Account

Keeping your business and personal accounts is an excellent first step to reducing financial risks from running a startup. It will be easier to track your expenses and manage your finances. Start by opening a separate account dedicated to your business. You must register your business and apply for an employer identification number to do so.

Implement Effective Cash Flow Management

Closely monitoring the amount of money coming in and out of your startup is vital to optimize your cash flow. To do that, ensure to have a startup budget in place. Know your company’s revenue and how much you need to spend on operating expenses. It’s also essential to have a clear financial emergency plan to prevent a cash flow crisis from hurting your startup.

Establish a Solid Business Plan

A solid business plan is imperative to run and grow your startup successfully. It can also help you gain better access to capital. With a well-crafted plan, you can show potential investors and lenders that your startup has a thorough financial strategy for success.

Work With a Tax Professional

Tax laws are complex to understand and navigate. Working with a tax professional is in your company’s best interest. With their specialized knowledge and experience in tax-related matters, they can help you identify potential opportunities for tax savings and prevent errors that could cost your startup’s financial health.

Ensure the Financial Well-being of Your Startup

Good financial health is essential for every business. Otherwise, no business will grow and scale to be successful. But, ensuring the financial well-being of your startup is particularly crucial in the early stages.

Now that you know your new business’s financial risks, you can better strategize to maintain its financial health. Use these challenges as opportunities to make more informed decisions for your startup. Lastly, don’t hesitate to seek help from a financial expert to guide you in your new business’s planning, taxes, and investments.