11 Financial Mistakes Small Business Owners Make (and How to Avoid Them)
Small business owners have a lot of responsibilities. In addition to running their businesses, they also have to wear a lot of hats, including that of chief financial officer. This can be a recipe for disaster if they’re not careful. Courtesy of Davis & Hodgdon Advisory Group, here are ten of the most common financial mistakes small business owners make and how to avoid them.
1. Poor Budgeting
One of the most common financial mistakes small business owners make is poor budgeting. Without a well-made budget, it’s easy to overspend and find yourself in financial trouble. To avoid this, Bench.co suggests creating a detailed budget for your business and sticking to it as closely as possible.
2. Inefficient Invoicing
Another common mistake small business owners make is inefficient invoicing. This can lead to late payments and cash flow problems. To avoid this, make sure your invoices are accurate and sent out in a timely manner.
3. Poor Inventory Management
If you don’t manage your inventory properly, it can lead to lost sales and misspent money. Finale Inventory advises avoiding this by keeping a close eye on your inventory levels and reordering stock as needed.
4. Not Carrying Workers’ Comp
Small businesses often operate with limited resources and tight budgets, leading them to prioritize expenses that directly contribute to their growth and success. However, neglecting to carry workers’ compensation insurance can be a costly mistake. Without this coverage, small business owners may find themselves facing significant financial and legal repercussions if an employee is injured or becomes ill on the job.
These expenses can quickly add up and threaten the longevity of the business. Investing in workers’ compensation insurance may seem like an added expense, but it can ultimately protect both employees and the business itself from the costly consequences of workplace accidents.
5. Mixing Business and Personal Finances
Mixing business and personal finances is a recipe for disaster. Not only can it lead to financial problems for your business, but it can also lead to legal problems if things go south. Keep your business and personal finances separate at all times to keep yourself from running into this issue.
6. Having Too Much Debt
While some debt is necessary to start and grow a business, too much debt can be crippling. If you’re carrying too much debt, it’s important to take steps to reduce it as soon as possible. Otherwise, you risk damaging your credit score and putting your business at risk.
7. Not Choosing an LLC Designation
One of the biggest financial mistakes small business owners make is not choosing an LLC designation for their business. This can put their personal assets at risk if their business is sued or runs into financial trouble. If you’re not sure whether or not an LLC is right for your business, speak with an attorney or accountant who can advise you on the best course of action. Davis & Hodgdon experts work closely with business clients to determine which type of entity structure fits best for their situation so click here to schedule a complimentary strategy session.
8. Hiring the Wrong People
Hiring the wrong people can be costly — both in terms of money and time wasted training them — so it’s important to take your time and find the right employees from the start. The best way to do this is by clearly defining the skills and experience you’re looking for in an employee and then conducting thorough interviews with each candidate before making a final decision.
9. Not Staying Up to Date on Financial Changes
Keeping up with changes in the world of finance is critical for any small business owner. Not doing so could result in missing out on important tax breaks or opportunities to save money. To stay on top of changes, sign up for newsletters from reputable sources and follow relevant blogs. You can also stay abreast of changes by attending conferences or webinars related to finance and accounting.
10. Not Seeking Professional Help When Needed
Many small business owners try to go it alone when it comes to their finances, but this is often a mistake. There are many complex financial issues that are best handled by professionals, such as bookkeepers, accountants, and tax attorneys. For more information about determining if your small business is ready for a professional CPA firm click here.
11. Failing to Have Contingency Plans in Place
No one likes to think about worst-case scenarios, but failing to do so can put your small business at risk. That’s why it’s so important to have contingency plans in place for things like natural disasters, data breaches, and other unforeseen events.
Plan Ahead
Small business owners have a lot on their plates, which can sometimes lead to them making careless financial mistakes. However, by being aware of the most common financial mistakes — such as poor budgeting, inefficient invoicing, choosing the wrong business structure, and failing to have contingency plans in place — you can avoid them completely.
Davis & Hodgdon Advisory Group is your trusted advisor in providing a dynamic range of timely, high quality financial services resulting in profitable and satisfied clients. Click here to connect with us today for more information!
Written by Katie Conroy, September 12, 2023
Photo Credit: Sincerely Media via Unsplash
