Many people dream of becoming business owners. You may want to do something you are passionate about and have control of how your business operates. Unfortunately, up to 33% of small businesses fail within two years and 50% fail within five years. However, many of these failures are the result of a few common mistakes. You can avoid these mistakes by following these tips.

Separate Your Business and Personal Finances

Many small business owners don’t separate their financial accounts from business accounts. You may think that because you are supplying the funds to start the businesses that you don’t need separate accounts, but nothing could be further from the truth. Even if you work freelance, you should have separate accounts. Because this income is declared separately, you need to have a separate bank account.

Initially, you can even set up a separate personal account rather than a business account, but it is vital that this account be separate from your primary personal account. Separate accounts allow you to track every penny you make in your business so you can easily distinguish your incomes during tax season.

Create a Business Plan

Because your business plan creates a foundation for your business, it should be created before you open your doors. However, even if you have already started your company without a business plan, you should write one immediately.

You see, most of your important business decisions will be based on your plan. It keeps you focused and your decisions aligned with your core business, saving you money. Your plan may also help you develop short- and long-term goals. And, if you experience unexpected growth and need quick financing, you have your plan already prepared.

Prepare for the Unexpected

Taxes and emergencies often sink businesses. These are crucial areas you need to plan for. If you are working for someone else, your taxes are automatically deducted from your check, but when you work for yourself, you have to set aside money for quarterly or yearly taxes. This requires some tax knowledge or working closely with a tax accountant. You don’t want to be caught on April 15^th with a huge tax bill and no way to pay it.

The same goes for emergency preparedness. Do you have money set aside to purchase emergency raw materials, change vendors or repair this equipment? You should. You should build an emergency fund into your budget, and at the end of every month, put this money into a business savings account for emergency purposes.  

Don’t fall into the traps that sink many small businesses. Prepare financially and give yourself a clear path will help you overcome any challenges you face.