Small business owners know better than just about everyone that mistakes can be costly. Financial mistakes can cost a small business owner everything. The best way to avoid common financial pitfalls is to know about them in advance and plan to avoid them. Here are some of the top financial mistakes that small businesses make, along with advice on how to avoid these pitfalls.
Taking on heavy debt
Borrowing money often goes with the territory of running a business, but you need to be careful about just what kind of debt you're taking on, and how much. Large loans can cripple a business with the weight of added worry, the pressure to perform well quickly, and the high interest payments. It's best to start off with a smaller amount paired with a well-thought-out plan to pay it back. Of course, an even better option is to not borrow at all and save up the needed funds yourself. Remember, just because a bank will lend you money doesn't mean that it's a wise move to borrow it.
Mixing your business funds with your personal funds
This is one of the most dangerous -- yet common -- pitfalls in small businesses. When you put your home on the line, for instance, you put your personal financial assets at great risk. If your business fails, you'll likely not only lose your business, but your personal property as well. And not only is there the added risk, but having no boundaries between the finances of your business and those of your household can create more headache all around when it comes to balancing accounts, filing taxes, figuring out overall profits, and creating financial goals. Do yourself and your business a favor and avoid mixing the two.
Not keeping careful records of transactions
In most cases, it's well worth it to hire a good accountant, or at least consult with a professional to help keep you on the right track with your own bookkeeping. You need to know where your money is going at all times, and frequently check that your records are updated and that expenses aren't piling up. Even seemingly inconsequential expenses could spell disaster in the long run for a small business if left unnoticed.
Failing to plan ahead
This is perhaps the most overarching mistake that small business owners make. Creating goals -- and updating them as needed -- is a key part of business success. Where do you want your business to be in five years? How do you see your business expanding? What are some possible additional opportunities to increase revenue? Failing to plan ahead means that you won't be utilizing the full potential of your business, but answering these and other questions will help you create a plan for success. Take the time to talk over your written goals and objectives with your team members. Steve Maraboli said it well in his book Unapologetically You: "If you have a goal, write it down. If you do not write it down, you do not have a goal -- you have a wish." (Tweet This)