Some of the biggest financial mistakes small business owners make are often in the beginning when getting the business up and running. However, the underlying problem with many of these small mistakes is that fast become standard practice. That is why it is essential to continuously monitor and tweak processes and operations, especially in the start to ensure that they do not become standardized.
The three financial mistakes that are seen most often tend to become larger problems down the line, if not rectified in time.
1. Always, always, always separate business and personal finances
Something that is often repeated, but rightly so. No good will come in mixing personal and business finances, and it will only blur the lines and cause confusion to you…and your accountant. If your business needs more resources than it is able to generate for itself, consider scaling back and understanding where the gaps are.
Are there operations that drain resources, or inefficiencies that are causing the deficit?
Plus, mixing finances also mean that come tax time, there will be a lot of confusion and likely many headaches. There needs to clear delineation between these financial boundaries, especially to protect your personal assets in case your business hits a rough patch.
There are many ways to do this, from establishing a business entity (like a corporation or LLC) to establishing business accounts and credit lines dedicated solely to business expenses.
2. No boundaries between personal and professional life
Further exploring this path between personal and professional life, it is not just expenses that need to be separated – but also time and personal resources. Think of your time as another form of an expense, and how you are accounting for it.
If you are dedicating over 80 hours a week to a small business to keep it afloat, it is time to reevaluate. Not only is the practice unsustainable from a mental and physical standpoint, but from a business standpoint.
Think about what will happen when you withdraw that time – if your business would be on the verge of collapse by doing so, it is definitely time to take a step back and consider a shift in business practices.
Moreover, consider the quality of the time spent as a benchmark for success. You could spend well over eighty hours at work, but if only half of that is spent doing meaningful work – is that really productive?
Instead of draining resources such as time, stay organized and on track to see when you are at your most productive and design a schedule around that.
3. No system for expense tracking
Once there is a division of personal and business, another key financial mistake made by small business owners is a poor (or nonexistent) system for bookkeeping and expenses.
Does your business have a system for bookkeeping and expenses?
If the answer is no, this is a huge mistake for a multitude of reasons. Not only does this make it difficult to understand where revenue is being allocated, but there is no way to know how much of a cushion is needed for slow periods, or for any sort of expansion or growth.
Tracking expenses may seem like an arduous task, but it is the only way to have successful business operations.
If bookkeeping and expense tracking are not your forte, consider outsourcing the process. Instead of trying to become a jack-of-all trades, focus on your core strengths and let others with more expertise take care of the financial day-to-day.
To ensure you are getting the right return on investment from this process, consider having timed status meetings (perhaps once a month, or even once a quarter) and go over financial reports with your accountant. This will help paint a clear picture of overall business health, as well as an opportunity to understand where improvements are needed to keep expenses under control.
To learn more about how to make your small business as financially healthy and successful as possible, please do not hesitate to contact us my requesting a consultation online or giving us a call at 405-759-2796.
