At the core of every business owner is the drive for success. Those who have found it, however, tend to be the ones who have treaded carefully in many regards. Luck and risk can certainly play into the equation, but when it comes to finances, every move should be calculated with precision. Even still, mistakes are very commonly made on this front, some of which can be crippling.
These are the biggest, most common mistakes in small business financials—paths you should avoid going down at all costs.
For a wide variety of reasons, accounting can take a backseat to many small business responsibilities. There are some businesses that still rely mainly on pen-and-paper notation to keep track of accounting, which opens up a huge amount of potential for human error to occur. Pen and paper may have been the only option years ago, but today, financial ERP (enterprise resource planning) software is hands-down a better option—especially if you’re looking to free up some resources.
Diversifying Too Fast
One of the biggest ways to end up in hot water as a small business is simply to allow growth to occur too quickly on the product side of things. Many companies put out one great product, for example, and then find themselves tempted to release another quickly enough to take advantage of the momentum that has been created. While this may sound like a good idea in theory, it can very easily backfire, which often results in financial crisis. Sticking with a single product is especially important for young companies, as growth takes time and most occurs naturally.
Depending Upon Credit Cards
There’s no getting around the fact that plastic can truly come in handy when making small business purchases, but too many companies rely on it entirely. Credit cards tend to come along with high interest rates and various fees, neither of which will do your small business any financial favors. Small business loans are a better option if you’re just getting started, or even an infusion of your own money into the business.
Combining Personal and Business Finances
To that last point, injecting personal money into a business should be the extent of how your business and personal spending interact with one another. It can be very tempting to draw from a single account, or even to make personal purchases that double as business expenses. Doing either of these will compromise your ability to keep your small business finances in order, however, and it’s a mistake that too many young business owners have made.
Finance will forever be one of the most challenging aspects of operating a business, but it doesn’t have to damage your ability to succeed. Plan ahead, and don’t make the same mistakes that countless others have before you.