A small business owner is a unique breed of individual; they strive for excellence, follow their dreams and explore new avenues for personal and financial success. However, many are not great at managing their finances. They are simply too busy working on furthering their business and often lose site of best financial practices. Here are our top 6 money mistakes small business owners make that we see in our accounting practice.
- They spread themselves too thin.
This is true from a financial standpoint as well as a personal standpoint. Financially, small business owners may be prone to spending revenues for expansion without an eye on long-term goals. From a personal perspective, they tend to overwork themselves, rarely take a break and become burned out. When this happens, the last thing they want to do is focus on the financial aspect of their business.
Prior to spending revenues for expansion or other purposes, it is wise to consult with your accountant. On the personal side, it is wise to find ways to maximize your ability to delegate the tasks that do not require your attention. Delegation is one of the toughest skills to develop especially for entrepreneurial-minded individuals. However, the benefits of careful planning, execution and delegation often can affect the bottom line more than investments.
- They focus on revenue vs. profit.
Being competitive comes with the territory when you are an entrepreneur or small business owner. While a dose of healthy competition can be a good thing if it causes you to overreach to reach the benchmarks of your competitors, it can actually cause more harm than good. For example, if you see one of your competitor’s rapidly expanding you may feel the need to keep up with them.
1,000 new customers or hiring 50 new employees maybe tempting, however, it is imperative to remember that with all expansion comes increased expenses. In fact, you competitor may have you beat on overall revenue but your profits may be significantly better. Success as a small business owner is all about maximizing your time, passion and the financial opportunities. By meeting with your accountant, you can analyze and determine opportunities to cut costs, minimize your tax burden and create a financial plan for your business.
- They investment in financial markets instead of their business.
Of course, there are times when investing in the financial markets or other types of investments makes sense for a business, however, many times that money would be better spent in expansion, marketing, additional personnel or capital equipment. It is important to weigh all opportunities and determine what is best for your business.
- They underutilize loans and mismanage credit cards.
Loans are available and are often a good idea for small business owners looking to expand and grow. However, it is not wise to use credit cards for this purpose. Corporate credit card interest rates are often significantly higher than rates you can get from a loan. While it may be tempting to payoff the largest loans first, it is typically a better financial practice to payoff the highest interest debts first. Speak with your accountant to learn which of your debts should be the highest priority to payoff and potential opportunities for growth using low-interest loans.
- They don’t pay attention to their business and personal credit reports.
As a small business owner few things are as important as personal and business credit. Poor credit can affect your ability to get money you need, affect your relationship with vendors and much more. It is important to review your business and personal credit reports at least twice per year and report any inaccuracies or discrepancies immediately.
- They overpay on both personal and small business taxes.
The tax code is constantly changing and it is nearly impossible for a small business owner to keep up-to-date on all of the best deductions, write-offs and opportunities to minimize the tax burden. Meet with your accountant twice per year to capitalize on their knowledge of the tax code.
