9 Financial Mistakes To Avoid As A Business Owner

Financial Mistakes To Avoid As A Business Owner

Today I'm talking about some of the most common and most expensive money mistakes business owners typically make that you should avoid, if you are a business owner - new or tenured alike. 

For the most part, these mistakes are made due to inexperience or from trying to cut costs. However, over the long term, they end up costing a lot of money.

The 9 mistakes I mention below can easily be avoided with smart decision-making and good planning and avoiding them could potentially save you thousands of dollars.

So here goes - below are 9 financial mistakes to avoid as a business owner:

Mistake #1: Over estimating how quickly you’ll earn a profit

A lot of business owners assume they’ll launch their businesses and with weeks they will have a profitable business. That is rarely the case. In fact, it takes time to build a stable and consistently profitable business and you want to build that into any plans you have. Especially plans you make around paying your bills.

If you are currently supporting your business by working full or part time, don’t quit your job right away. You also want to make sure that you perform a breakeven analysis so you can estimate how soon you can expect to start earning a profit (assuming all goes as planned).

Mistake #2: Mixing personal and business funds

Mixing your personal and business funds is a big no-no. For one thing, it is a tax time nightmare in terms of making business deductions based on your business profit or loss. Outside of the tax problem, its just really bad practice because you have no way of knowing how much your business is actually making or loosing which means you have no idea how your business is doing financially.

Also, if you were to ever need to apply for a business loan you would have to show your business financials over time and if your personal and business finances are mixed, you would have no way to show this.


"Mixing your personal and business funds is a big no-no."

 

Mistake #3: Not staying on top of bookkeeping

Bookkeeping is time consuming and annoying I get it, but a lot of business owners lose tons of money by ignoring their bookkeeping. As a business owner it’s something you just have to do and doing it frequently makes it easier.

Putting a couple hours on your calendar once a week or bi-weekly to review your expenses and to stay on top of your invoices can save you a lot of headache. At the bare minimum you should do this once a week. There are lots of tools that can help make process easier or you can create your own simple spreadsheet.

Mistake #4: Not planning for taxes

As a small business owner it’s really important you plan for taxes. If you own a profitable business then you need to plan to put funds aside to pay the taxes you will owe the government.

If you are not yet profitable, then you might be eligible for certain deductions based on your business expenses etc. Either way, you want to make sure you are prepared for taxes and your accountant can help you plan for this.

Mistake #5: Not hiring a good accountant

A good accountant is really important in your small business. Not only will they help file your taxes and plan out what you need to do to be prepared for taxes as I mentioned above, they will also provide you with recommendations that can save your business money, keep you up to date with the latest tax laws, help you handle payroll, help you prepare annual statements and documentation to support getting financing etc. They will also work through an audit with you in the event that you ever get audited.

Mistake #6: Not hiring a good lawyer

A good lawyer that handles small business matters is really important in your small business. Your lawyer can help you with ensuring your business is properly registered and structured the right way in your state and from a federal perspective i.e. sole, proprietorship, LLC etc.

They can help you review all of your contracts and legal documentation e.g. partnerships, vendor and client contracts or any trademarks you may want to create. And if you were to get into any disputes with vendors or clients, they can give you legal advice and represent you if need be.

{Both your accountant and lawyer will save your valuable time and give you the peace of mind to know that things have been done the right way.}

Mistake #7: Not establishing a business emergency fund

Establishing an emergency fund for your business works the same way one would work for your personal finances. It is essentially there to protect your business in the event of an emergency. Your business emergency fund should be able to cover your business expenses and keep you running for at least 3 to 6 months without you having to incur new or additional debt.

There are folks out there that would tell you to get a business loan that you can leverage in the event of an emergency but I am of the opinion that if you are currently running a profitable business, you should create your own cash cushion for your business in the event of emergencies and grow it as the business grows.

Mistake #8: Not having business insurance

Business insurance is essential. Not having business insurance is a huge mistake many business owners make. Imagine if your computer gets stolen, or if your retail store it gets vandalized and you don’t have insurance?

You are solely responsible for the replacement expenses. It’s worth making a phone call to an insurance agent to discuss the various types of insurance available for your business type.

Mistake #9: Getting into business debt without a plan

A lot of times business owners take on business debt in the form of credit cards or business loans either from family and friends or a bank without a solid plan how these funds will be used in their business or how they will pay back this debt.

They get sidetracked and then start spending the funds on stuff that is “nice to have” because they don’t really have a plan for the money. It is essential that before you consider any business funding that involves acquiring debt you carefully plan out how the funds will be allocated and make a plan to repay back the debt as quickly as possible.

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If you are able to avoid these money mistakes you will be setting a solid foundation for your business and setting yourself up for financial success. At the end of the day, outside of the passion and you loving what you do in your business, I'm sure you want to make and keep your money!

Bola Onada Sokunbi