10 Common Small Business Finance Mistakes (and How to Avoid Them)
Running a small business is no easy feat. In addition to managing day-to-day operations, you also have to wear many hats, from marketing and sales to human resources and finance. And while you may be an expert in one or two areas, chances are you’re not as well-versed in others.
This is especially true when it comes to finance. After all, unless you have a background in accounting or finance, navigating the financial side of your business can be daunting. Not to mention, there are a lot of potential pitfalls.
To help you avoid making any costly mistakes, we’ve compiled a list of 10 common small business finance mistakes—and how to avoid them.
1. Not Separating Personal and Business Finances
One of the most common—and costly—mistakes small business owners make is commingling personal and business finances.
Not only can this make it difficult to track and manage your business finances, but it can also put your personal assets at risk if your business is ever sued or faces financial hardship.
To avoid this mistake, be sure to open up a separate bank account for your business and use it exclusively for business expenses. You should also get a business credit card to help you keep track of your expenses and build business credit.
2. Not Staying on Top of Your Books
Another common mistake small businesses make is not staying on top of their books. This can lead to missed opportunities, late payments, and even fraud.
To avoid this mistake, be sure to reconcile your accounts every month and track all of your income and expenses. You may also want to consider hiring a bookkeeper or accountant to help you stay on top of your finances.
3. Not Creating a Budget
A budget is one of the most important tools for any small business owner. It not only helps you track your income and expenses, but it can also help you make informed decisions about where to allocate your resources.
Unfortunately, many small businesses either don’t have a budget or don’t stick to their budget. This can lead to overspending and financial difficulties down the road.
To avoid this mistake, be sure to create a realistic budget for your business and review it regularly. You may also want to consider using accounting software to help you keep track of your finances and stay within your budget.
4. Not Planning for Taxes
Another common mistake small businesses make is failing to plan for taxes. This can lead to surprises come tax time and, in some cases, even financial penalties.
To avoid this mistake, be sure to set aside money each month to cover your estimated taxes. You may also want to consider hiring an accountant to help you with your tax planning and preparation.
5. Not Tracking Your Business Credit
Your business credit score is one of the most important factors lenders will consider when you apply for a loan or line of credit. Yet, many small business owners don’t track their score or take steps to improve it.
To avoid this mistake, be sure to check your business credit score regularly and take steps to improve it. You may also want to consider signing up for a business credit monitoring service.
6. Not Managing Cash Flow
One of the most common—and costly—mistakes small businesses make is failing to manage their cash flow. This can lead to missed opportunities, late payments, and even bankruptcy.
To avoid this mistake, be sure to track your income and expenses carefully and develop a system for managing your cash flow. You may also want to consider using accounting software to help you keep track of your finances and manage your cash flow.
7. Not saving for a rainy day
Many small businesses don’t have enough saved up to cover unexpected expenses or disruptions in income. This can lead to financial hardship if your business is ever faced with an unexpected setback.
To avoid this mistake, be sure to create an emergency fund for your business and make regular contributions to it. You may also want to consider investing in business insurance to help protect your business in the event of an unexpected disaster.
Conclusion:
These are just a few of the most common mistakes small businesses make when it comes to their finances. By avoiding these mistakes, you can help ensure your business remains financially healthy and stable.