Finances keep your business running. That's why managing it can make or break a business. But as new business owners, it can be confusing to handle money, and you might be spending them on things that could be devastating for your business.
For small businesses in particular, every penny counts, and managing finances is not always simple. In this article, we'll outline a few of the most typical errors that small business owners make that might hurt their company.
It is alright to feel excited about opening your business. But often, this excitement turns into unnecessary spending. Buying office space or furniture to make the area cozy can be tempting. There are also pieces of equipment and technology to splurge on. But before buying these things, make sure you need them.
When you have a small business, you can start with the basics. As your business grows and you earn more, you can continuously upgrade. Moreover, don't get business loans you can't pay back. The money you get will allow you to buy things, but if you don't have enough income to pay it back, your business won't generate profit or have the finances to keep operations running.
All businesses should have prepared emergency funds. There's always a possibility that an unwanted event will happen, and most of the time, it will cost you money. You can't always rely on the daily profits since you always have expenses to settle.
With emergency funds, preventing damages to your business will be easier. For example, when a piece of your equipment malfunctions or breaks, you’ll need a large sum of money to repair it. In worse scenarios, you’ll need to replace it. There will also be months when business is slow, and emergency funds can keep your operations running.
Every payment is essential for a small business. But many businesses need to pay more attention to their unpaid invoices. According to recent studies, almost 65% of businesses have unpaid invoices from their clients. That is a lot of money you lose if you're not settling with your clients.
Make it a habit to track your invoices. Send regular notifications to your clients regarding their dues. You can add penalties to overdue payments so clients are forced to pay your business more diligently.
Running a business also means you have tax obligations to fulfill. Many business owners focus on marketing strategies, sales, and other aspects that they often forget to consider taxes. Business taxes can be heavy when you pay them all at the end of the fiscal year.
You can plan them quarterly, so your business's cash flow will not be interrupted. Planning for your taxes will also help you distribute your business finances equally for your required expenses.
Many business owners fail to realize the importance of a positive cash flow. The main focus of cash flow is the money that enters and exits your company. Of course, it's good for your business's finances if cash continues to go into your business. The profit and loss statement can help you identify any cash flow problems early on.
However, there are also business-related expenses you should know of. There's inventory you need to track so you can keep selling and meeting your customers' needs. There are bills to pay, like rent, electricity, and other fees for business operations. Managing small business finances properly can help you balance your income and expenses.
Small business owners often think they have sound financial management if their expenses are paid. Always check your balance sheet to see if the money going out and in is balanced and will still make you profitable.
One of the most common mistakes of business owners is confusing cash and profit. For example, your business generates $1000 per week, and your expenses add up to $450. The cash you have on hand is $1000, and the profit you generate is $550.
In a month, you can expect to earn $4000 with $2200 to pay in expenses. If the business is stable and income is consistent, your expenses will be covered. But remember, business can be slow and unpredictable things can happen. The $4000 may not come in time, and you may not have enough to cover your expenses, leading to your business's downfall.
When business is doing good, and you are earning a lot, buying the things you want and using business profit for personal expenses can be tempting. But it is most practical to keep your personal and professional accounts separate which a lot of small business owners find it challenging to do.
While it makes sense to use your profit for your personal needs since you own the business, remember that a part of your profits should be invested for future growth. Moreover, business profits are used to assess your business's financial health.
Creating a budget is crucial for every business. When you have a clearly drawn budget for your business, you’ll have an accurate expectation of your future expenses. From business loans to buying inventory, paying your tax obligations, and employee payroll, you can ensure to fulfill all your business expenses.
It's inevitable that you can make mistakes in managing business finances. However, by having a financial plan, you may anticipate and prevent them. Furthermore, creating a budget plan allows you to see different situations that can happen to your business.
Don't underestimate small business financial management. When it comes to business, dealing with money is difficult. Fortunately, technology has caught up, and accounting software makes basic financial management for small businesses easy.
Investing in accounting software will make business financing easier, especially for owners new to the business. Here are some reasons why using accounting software for your business is beneficial.
Business finances go hand in hand with accounting, and it's not every business owner's cup of tea. Unloop offers accounting services for small businesses that need help with their financial management. We offer services for forecasting, payroll, bookkeeping, accounts payable, and taxes.
Don't let messy finances hinder your path to success. Get professional help today! Book a call with us and talk to an expert for free.
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.