For many small businesses owners, wearing multiple hats comes with the territory. Of all the roles small business owners are probably taking on in their business, managing the financial side is probably one of the most challenging for many reasons. A lot of times, what I see is that many small business owners are hyper focused on winning business and serving their clients (as they should be) that maintaining their books and financial planning is often neglected. As a result, many small business owners work long and hard at their business and are seeing money come in the door and leave just as quickly. Unfortunately, neglecting the finances of your business is not something you can afford to sustain for long. The good news is, you can absolutely improve your profitability and chances for success by avoiding the below common money mistakes.
If you take nothing else away from this blog post- please make sure you separate your business accounts from your personal accounts. Trust me- commingling your funds is a recipe for disaster and a headache you do not want.
For starters- if you are using your personal credit card to buy business supplies you are going to have a very difficult time keeping track of your bottom line. This becomes even more problematic when it comes time to file your taxes as you try to separate the business and personal purchases to determine what’s deductible. And as if you needed any more problems- you definitely don’t want the IRS to audit your taxes and question whether you have made personal purchases and deducted them as business expenses.
My husband is the Budget King and a Personal Finance Coach. When he coaches his clients he describes a budget as “a game plan for your money that allows you to visually see where your money is going and puts things into perspective when trying to reach financial goals”. When it comes to your business- a budget is an essential tool that should be a living document. Don’t set it and forget about it. You should regularly review your business budget against what you actually spent and make adjustments where necessary.
As a business owner, you will have different state and federal tax obligations depending on the type of business you operate and the size of your business. In general, a good rule of thumb is to make estimated quarterly tax payments throughout the year so that you are not scrambling and stressed at the end of the fiscal year. Check out this helpful article on the IRS website regarding making estimated tax payments.
Growing up I remember my Dad would always say “It is better to have it and not need it, then to need it and not have it”. When it comes to having access to a line of credit for your business- don’t wait until you find yourself in a situation where you NEED a business loan because chances are it’s going to be next to impossible to get one. Think about it- banks want to extend credit to customers who they know will pay them back. The time to seek credit for your business is when your financials are solid enough to convince lenders that you can pay them back.
Oftentimes, small businesses- especially those just starting out charge too little. There are a ton of factors to consider as you price your products or services including how much it costs to run your business, costs of your labor, materials, the list goes on. If you’re just getting started take some time to think about all the costs involved before establishing your price, do some research on what competitors are charging for the products and services you offer. Remember the goal is not to be the lowest priced vendor, the goal is to be profitable. Check out this helpful article on Quickbooks regarding pricing strategies for more insights.
Cash flow refers to the money that is going into and out of your business. Managing your cash flow is very much an art and not a science. Some quick tips for managing your cash flow include:
I think we can all agree that we ultimately went into business to make money. If you are not paying yourself, you are effectively providing your business with your time and effort for free. Personally, I believe that paying yourself a salary ensures that you will work even harder to make sure your business is profitable.