Large businesses often have the luxury of having different departments handle different functions. But as an entrepreneur and small business owner – it’s up to you to manage these things. Avoid these common mistakes to ensure you have a blossoming bottom line!
Mistake: Not separating business & personal finances.
Why: Mixing your business and personal funds will make it practically impossible to keep proper records & receipts. Why does that matter? Well, it can lead to potential issues and delays when filing your income taxes. And it can certainly lead to an audit with the IRS – yuck!
Solution: Open an official business checking account; as well as savings & credit card accounts if needed. Do not comingle your money – and keep your receipts separate.
Tip: If your business is your sole source of income, you’ll have to pay yourself a salary (even if it’s small) to ensure you keep your hands out of the biz account for personal needs.
Mistake: Not keeping detailed records of your sales and expenses.
Why: If you are unable to see how much money is going in and out of your business then you’re in trouble. This makes it virtually impossible to know how financially healthy your business is because you’re unable to do the necessities like sales analysis and spending reviews. It’ll also cause an issue come tax time!
Solution: If you aren’t ready to us an accounting solution yet, at the very least start tracking information in Excel.
Tip: Pull bank statements each month and match it up against your Excel sheet to ensure every charge and deposit is accounted for.
Mistake: Focusing only on Sales.
Why: You can make $300,000 in sales this year; and spend $300,000 in expenses… the end result – $0 Net Income and your bank account (and personal wealth) didn’t increase a cent! Bottom line is much more important than top!
Solution: Track your expenses (See Solution for #2)
Tip: Instead of focusing solely on sales; focus on important key metrics like Gross Profit % and Net Income %. Not sure what these means? No worries! Join my Exclusive Email List by clicking here – and you’ll instantly get your first FREE download!
Mistake: Big spending in the startup phase.
Why: The early phase of your business is one of the hardest parts. Don’t cause unnecessary burden on yourself by spending frivolously.
Solution: Start lean; just get the essentials! Do you need to rent that office space downtown, or can you start from your home office first? Do you need to buy 500 pieces of inventory, or can you start with 50?
Tip: Think hard about every dollar you plan to spend! Is there a less costly way? Are you spending money on things that will directly put money back in your pocket?
Mistake: No Cash Savings
Why: Many small businesses go through financial peaks and valleys. It’s important to have a cash reserve to prevent relying on debt.
Solution: Build a savings with at least 2 months of operating expenses.
Tip: Remember that this savings is similar to a personal emergency fund! Don’t tap into it unless absolutely necessary.
Mistake: Not knowing your books.
Why: Your books are your financial records and they hold very valuable information about your business. Even if you have a professional helping you with your books you should still be able to understand results so that you can make key decisions.
Solution: At the very least, hold monthly meetings with your accounting or finance professional and review your records and reports.
Tip: Need help understanding some finance and accounting lingo or need help managing your own books? Simply click on Work With Me to learn more!
Avoid these common financial mistakes so that you can protect your business’s future! And don’t go it alone – I’m here to help! Be sure to join my Exclusive CEO’s list and get tips and goodies sent direct to your inbox! Join here for your first Finance Freebie!
Any financial blunders that you’ve experienced or things you wish you would have done differently?!