Running a small business is not easy - especially when it comes to finances. I’ve seen too many small businesses struggle (and even close their doors) because of financial missteps that could have been avoided with a little more planning and attention.
If you want your business to stay in the black, here are the biggest financial mistakes small businesses make and how you can avoid them:
Cash flow is the lifeblood of your business. It’s not just about how much money is coming in, but when it’s coming in. Too often, small businesses don’t plan for gaps in cash flow, especially during slower seasons.
How to avoid this:
Create a cash flow forecast that looks ahead at least three months. This will help you anticipate when you might face shortfalls and allow you to plan ahead, whether that’s securing a line of credit, cutting back on unnecessary expenses, or if you have time, developing a killer sale to drive revenue up.
A budget isn’t just a guide for your spending—it’s a blueprint for how you’ll achieve your business goals. Yet, many small business owners either don’t have a budget or create one that’s too optimistic and doesn’t account for real-world fluctuations.
How to avoid this:
Take a hard look at your fixed and variable costs, and set a realistic budget that aligns with your revenue projections. Don’t forget to leave room for unexpected expenses (looking at roughly 10-15% of your total budget)—you’ll be glad you did when they inevitably pop up.
It’s tempting to dip into personal funds to keep your business afloat or cover expenses when times are tough. But blending your personal and business finances can lead to a messy situation when it comes time to file taxes or assess your business’s true financial health.
How to avoid this:
Open a separate bank account and credit card for your business. Keep everything organized and make sure all income and expenses go through your business accounts so you have a clear picture of your financial status at all times. Plus, it’ll avoid an absolute nightmare if you were ever to be audited by the IRS.
If you’re only looking at your bank balance to gauge how your business is doing, you’re missing a huge piece of the puzzle. Understanding your financial reports—like profit and loss statements and balance sheets—gives you a more accurate view of how your business is performing.
How to avoid this:
Make it a habit to review your financial reports monthly (or more frequently). This will help you identify trends, spot potential issues, and make informed decisions about how to grow your business. If you’re not sure how to read these reports, now’s the time to get familiar or hire someone who can help.
One of the most common mistakes small business owners make is pricing too low, thinking it will attract more customers. But if your prices aren’t covering your costs and leaving room for profit, you’ll struggle to stay afloat—even if you’re making good sales.
How to avoid this:
Regularly review your pricing strategy to ensure you’re covering costs, paying yourself fairly, and making a profit. Don't be afraid to adjust your prices as your expenses increase or your value grows—customers are willing to pay more if they see the value and a lot of that value comes from first being able to have a stable business, which gives you a stable mindset from which to create good offers.
Tax season can be a rude awakening for small business owners who didn’t plan throughout the year. If you’re not setting aside enough money for taxes, you could end up with a bill you can’t pay—or worse, penalties for underpayment.
How to avoid this:
Work with an accountant to estimate your tax obligations throughout the year, and set aside a percentage of your income each month for taxes. If you can, pay quarterly taxes to avoid surprises at year-end.
Need help figuring out where your business stands financially? We’re here to help you create a solid financial plan that supports your goals—let’s chat!