You’re starting up your small business, after years of hoping and wishing, you are finally going to be the entrepreneur that you always dreamed you’d be. Congratulations! Starting a business is a big step, and one that shouldn’t be taken lightly. And to help you enjoy and thrive in your experience as a business owner, we have tips for avoiding the common money mistakes of small businesses.
Not separating business spending from personal
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Always, always separate your personal funds from your business expenditures…always! This is the easiest way to give yourself a headache when starting a new business. It might seem convenient to pick up a few groceries or home items that you need when you’re on a business shopping trip and to just use your business card for everything. Or vice versa, you might decide to use your personal credit card for some business expenses from time to time. Or maybe, you have one card that you use for all expenses. Tax season will not be a fun time for any businesses who use this tactic.
The solution? Keep a separate card for business and personal transactions. Put all business purchases, and only business purchases, on a specific credit card for your business. If you are making a business and personal shopping trip in one go for convenience, you can separate out your items for two individual transactions. This will make your expenses so much simpler to track and you will thank yourself later.
Not tracking down receivables
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Receivables is the money your customers owe you. If you offer any kind of subscription or service that requires regular payments or payments after ordering the service, make sure that the money you are owed is getting paid. The longer you wait to collect this money, the less likely you will be to get it.
A best practice for obtaining your receivables is to require payment upon receipt of a service, or within a day or two of getting that regular invoice. And then follow up if you don’t receive payment. You are a business owner and worked hard for that money.
Not paying the right amount for taxes
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Keep track of everything. Many common money mistakes small businesses make revolve around this problem. Tip #1 will help when it comes time for taxes.
Don’t pay more taxes than you have to, or less. Many small businesses forget that even items like travel expenses can be deductible. Technology has made keep track of mileage simple with apps for logging travel. Take the time to record items like these and meal or entertainment expenses as related to your business.
Do you have a cash business? If you run a business and take payments or pay bills in cash, taxes still apply to you. To avoid an IRS audit, or to help you through one, make sure you are keeping receipts and accurate records.
Not hiring professionals
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If your business takes off – and let’s be honest, every business owner wants that – you need professional advisors to help with the things that might not cross your mind, especially if you hire others to work for you. If you aren’t a professional financial advisor or attorney yourself, it might be wise to hire each of these professionals. Even if you are either of these, when running your business, you’ll be busy enough that you’ll want one person dedicated to finances or to legal circumstances because multitasking creates mishaps. Having professional assistance can help you avoid situations like embezzlement investigations and IRS audits – or at the very least to help you through them.
Letting recordkeeping fall on the priority list
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Record keeping can be a tedious task and is often one of the first things to fall to the bottom of the priority list. But if you haven’t noticed the common theme yet, keeping track of your spending and earnings is critical!
It’s easy to get caught up in trying to please customers and to just keep your business moving along. But if you aren’t paying close attention to finances along the way, you could end up in some deep water later down the road.
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To keep this issue from harming your business, try to manage your records and record all monetary items weekly. Set aside a specific time each week, or more often if you can, to do the recordkeeping that is necessary for keeping your business profitable.