Are you a small business owner who’s feeling the thrill of entrepreneurship but is also a little overwhelmed when it comes to managing your finances? Trust me, you’re not alone! It’s easy to get caught up in the excitement and make some common small business money management mistakes that can end up hurting your business.
According to a banking industry study, 82% of businesses fail due to poor money management.
But we’re going to dive into the most common mistakes and give you some simple strategies to avoid them.
So, let’s get started and make sure your finances are working for you, not against you!
Lazy Expense Tracking
Not keeping track of your expenses is one of the most common small business money management mistakes, but it’s a recipe for disaster. It’s easy to let all those receipts pile up when you’re busy running your business. But understanding where your money is going is essential to improving your bottom line.
By keeping tabs on your spending, you can identify areas where you may be overspending and make adjustments to your budget. This will help you maximize your profits and ensure that you’re making the most of your resources.
Categorizing your business expenses correctly is not just for tax time. Categorizing your expenses, either weekly or monthly, helps you understand which ones are essential to your business and which ones are not. And that’s critical information to protect your profit margin.
With expense information categorized in real-time, you can make informed decisions about where to cut costs or invest in your business. So, whether you use accounting software or a simple spreadsheet, make sure you’re recording all your business expenses on a regular basis.
By setting up a system for tracking and categorizing your expenses, you can take control of your small business money management and make informed decisions to help it grow.
When it comes to small business money management mistakes, there’s one mistake that can cause a lot of confusion and problems down the line; and that’s mixing your personal and business finances. I know it may seem convenient to use your personal bank account or credit card for business expenses, but tracking expenses and filing your taxes accurately when you mix personal and business finances can be a nightmare.
By opening a separate bank account and credit card specifically for your business, you’ll be able to easily track your business expenses, monitor your cash flow, and file your taxes more accurately.
But it’s not just about avoiding headaches and mistakes. By keeping your personal and business finances separate, you’ll also be able to establish a clear financial picture of your business. This will make it easier for you to determine your profitability, make financial projections, and plan for future growth.
And here’s something else to consider. By keeping your personal and business finances separate, you’ll also be protecting yourself from personal liability in case of legal issues or business bankruptcy. That’s a huge weight off your shoulders, right?
Now, if you’ve already mixed your personal and business finances, don’t worry; it’s not too late to fix the situation. Start by separating your finances and setting up a system for tracking your business expenses moving forward. Trust me, it’s worth the effort to avoid one of the most common small business money management mistakes. You got this!
Not Accruing for Taxes
Now, let’s talk about one of the most important aspects of small business money management: taxes. I know it may not be the most exciting topic, but trust me, planning for taxes is essential to the success of your business.
Failing to plan for taxes can be a costly small business money management mistake. No one wants to be hit with a big tax bill come tax season. That’s why it’s crucial to understand your tax obligations and plan for them accordingly.
One of the best ways to plan for taxes is to set aside a portion of your profits for taxes throughout the year. This proactive approach will help you avoid any surprises and ensure that you’re able to meet your tax obligations. Many small business owners set aside a percentage of each sale or allocate a certain amount each month for taxes. It’s all about finding what works best for you and your business.
Now, let’s talk about deductions. As a small business owner, you’re entitled to deduct certain business expenses from your taxable income. This can help reduce your tax bill, but you need to keep accurate records of your expenses to ensure that you’re taking advantage of all available deductions. You don’t want to leave any money on the table, right?
Without a doubt, one of the most common small business money management mistakes is failing to plan for taxes. But with a little planning and organization, you can avoid any surprises and ensure that your business stays on solid financial footing.
Your business (and your wallet) will thank you for it!
Running Without a Budgeting
Creating a budget is one of the most important ways you can avoid small business money management mistakes. Nobody likes creating a budget because it feels like a financial diet. But it’s really a way to proactively decide how you want your money to work for you.
Trying to run your business without a budget can be a costly mistake. Without a budget, you won’t know how much money you have to work with or where your money is going. This can lead to overspending, cash flow problems, and even business failure. And that creates stress.
That’s why it’s crucial to create a budget and track your expenses. By identifying your income and fixed expenses, such as rent, utilities, and employee salaries, and allocating funds for variable expenses, such as inventory, marketing, and supplies, you’ll be able to plan your spending and make informed financial decisions. And don’t forget to set aside a portion of your budget for emergencies and unexpected expenses.
Once you have a budget in place, it’s crucial to track your expenses and compare them to your budget regularly. This will help you identify any areas where you’re overspending or underspending and make adjustments as needed.
And the good news is you don’t need fancy accounting software to do this; a simple spreadsheet will do the trick!
Budgeting isn’t just about managing your finances. It can also help you achieve your business goals. By setting financial goals and tracking your progress, you can stay motivated and focused on growing your business.
Plus, having a budget in place can make it easier to secure financing if you need additional funds.
Avoiding small business money management mistakes can be challenging, but by creating – and sticking to – a budget, you can set your business up for success.
Spending in the Wrong Areas
Let’s talk about one of the most important aspects of small business money management: spending your money in the wrong areas. I know it may seem counterintuitive, but spending in the right areas can actually help your business grow and increase profits.
Unfortunately, small business money management mistakes often include spending in the wrong areas. It’s important to control costs and avoid unnecessary expenses, but it’s equally important to invest in areas that will help your business thrive. This can include marketing and advertising to reach new customers, employee training to improve skills and productivity, and new technology to streamline operations and improve efficiency.
When spending, it’s important to prioritize areas that will have the greatest impact on your bottom line. Don’t fall into the trap of spending money on shiny penny expenses that won’t help your business in the long run. Take the time to research your options and evaluate the potential return on your investment before making any major investments.
Avoid small business money management mistakes when it comes to spending. Take a proactive approach, prioritize the right areas, and watch your business grow and succeed!
Yes, managing your small business’s finances can be challenging, but by avoiding small business money management mistakes and using your money wisely, you can set your business up for success. Keep track of your expenses, separate your personal and business finances, plan for taxes, budget, and invest in the right areas to help your business grow and thrive. With the right strategies and mindset, you can achieve your goals and build a successful business. We specialize in helping small businesses create and implement strategies to improve their business.