As a small business owner, making smart financial decisions is essential to keep your company thriving. Unfortunately, many small business owners make common mistakes that cost them money and jeopardize their businesses.
Here are three of the most common financial planning mistakes that small business owners make and how to avoid them.
Not Having a Solid Financial Plan
One of the most important things you can do for your small business is to create a financial plan. This plan should include your short- and long-term financial goals, as well as how you plan to achieve them.
For example, if you're hoping to expand your business in the next few years, you'll need to include a financial strategy for how you'll raise the necessary capital. Take some time to sit down with a financial planner who can help you map out a plan that makes sense for your business.
Without a financial plan, it will be difficult to make sound financial decisions for your business and track your progress over time. You also run the risk of making impulsive decisions that could end up costing you money in the long run.
Not Prioritizing Savings
Small businesses should have a financial cushion in case of unexpected expenses or a slowdown in business. Many small business owners put all of their profits back into the business, but this can be a risky move. If you don't have any savings, you could find yourself in financial trouble if your business hits a rough patch.
Be sure to set aside some of your profits each month to build up your savings. This will give you a financial safety net to fall back on if needed and help you reach your long-term financial goals. You also may want to consider investing some of your profits, which can provide you with additional income down the road.
As a business owner, you need to be aware of all the costs associated with running your business, such as rent, utilities, inventory, employee salaries, and marketing.
Many small business owners only focus on the big-ticket items and forget about the smaller expenses that can add up over time. Unfortunately, these smaller expenses can really put a strain on your finances.
To avoid this mistake, ensure you track all of your expenses and budget them accordingly. This way, you'll have a better idea of where your money is going and can make adjustments if necessary.
You may also want to consider setting up a separate business bank account to help you keep track of your business expenses. This way, you won't have to worry about mixing up your personal and business finances.