small business owners costly financial mistakes

Small Business Owners Should Avoid These Costly Financial Mistakes

Small business owners know that creating a solid plan from the very beginning is essential for success, no matter what their goals are. While it’s crucial to know which moves to make, however, it’s also important to know what to avoid.

Fortunately as more technology becomes available for entrepreneurs to take advantage of, it’s easy to prevent costly mistakes and make more informed decisions when it comes to your business finances, whether that includes not incurring too much debt or ensuring that your accounting practices are secure.

Use this guide to get started with a plan on what to avoid when it comes to your business finances:

Not Sticking Closely To a Budget

Whether you’re planning for tax payments or figuring out how much you can afford to spend on replenishing inventory, sticking closely to a budget is crucial for your business.

Once you’ve created your initial financial plan, you’ll need to make sure your cash flow is optimized by keeping track of inventory, choosing the right payroll cycle, and offering multiple payment options to customers. You can also actively look for ways to cut costs and save money throughout the year, such as offering remote work to employees, utilizing energy-saving tactics in your office or storefront, and bundling certain services for a lower monthly bill.

It’s also a good idea to continually check and revise your expenses since they will change over time.

Not Keeping Funds Separate

Once you know where your spending is going, it’s essential to have a plan for keeping it all documented. Owning a small business requires a distinct separation of your personal and professional finances, not only to remain compliant with the IRS but to prevent liability issues should a legal problem arise.

Mixing funds could result in the loss of any protection afforded you by an LLC or corporation, meaning you’ll be personally liable for business debts or fees accrued during litigation. 

Some actions that could spell trouble include writing checks for your personal spending from the business account, using a personal credit card for business expenses, and making withdrawals from a business checking account for personal expenses without proper documentation. Even if you never plan on making these moves, accidents happen, so stay organized by separating your accounts and keeping a close eye on every transaction.

Not Ensuring Prompt Payment

Keeping track of your transactions is essential, but it’s also important to make sure your business is keeping up with every invoice before they’re due.

The right invoicing software will ensure that you get paid on time or even before the due date and will help you maintain accounting accuracy; it can also alert you every time a customer pays or views an invoice. Not only that, it will give customers the option to pay their bill directly through the invoice itself, as well as set up a payment schedule for recurring due dates.

Staying on top of your invoicing system and keeping it organized is imperative not just for the present, but for your future financial planning and dealings with the IRS.

Not Planning For Your Tax Obligations

Staying organized throughout the year can help you feel more prepared for handling tax season, but it’s important not to leave your planning to the last minute. Making estimated payments on time over the course of a year will help you stay on top of your obligations so you’re not overwhelmed with a large sum owed in the spring. Keep all of your tax records organized in one secure place for easy access, and consult an accountant throughout the year if necessary to make sure you’re on track. 

If you feel your tax needs demand a bit more attention, consider learning more about accounting and small business regulations by going back to school. Earning an online accounting degree can help you build your business the way you want, and you can do it on your own time while running things as usual. You can also learn about marketing, business ethics, or economics, all on a flexible schedule.

Not Preparing For Emergencies

Planning for the important things you know you have to pay for is one thing; it’s also crucial to plan for the unexpected and unforeseen.

While no business owner can see the future, there will almost surely come a day when a major cost pops up out of nowhere, or when business slows down and requires a rainy day fund. Start setting aside a little money each month solely for the purpose of keeping it handy when you absolutely need it.

Not only will this ensure that you’re well prepared if a potentially devastating circumstance arises, but it will also give you and your employees peace of mind as we move through the pandemic.

Not Investing In The Right Resources

While it’s important not to overspend throughout the year, it’s just as crucial to make sure you’re investing in the right things. You may not want to spend a lot of money on tools that aren’t absolutely necessary for your daily operations, but at the same time, you want to ensure that you have everything you need for a successful year.

This applies not just to everyday tools like computers, but also for marketing and customer service. Without all of these elements working together, you’re going to have a hard time reaching your goals, so come up with a strategy that works for your budget while keeping in mind that it’s a necessary expenditure.

Maintaining the financial health of your small business can be stressful, so it’s a good idea to practice self-care to avoid burnout. Look for helpful online resources as well, as these can help give you peace of mind throughout the planning processes. With the right tools, you can get organized and stay on top of your money wellness.