Far too often, we meet business owners who come to us in need of fixing simple, common financial mistakes, allowing their hard earned revenue to trickle away.
By identifying these common mistakes, you can take action to eliminate them before they create significant problems. Your business will reward you for it.
Operating without a safety net
There is a good reason so many experts tell you to hold a generous amount of savings for unexpected events. Someday, sales could decline or a valuable piece of equipment might malfunction without warning. Using a credit card is a short-term solution.
Falling behind on payments is more probable when using credit cards to cover unexpected expenses. Missed payments negatively impact credit scores and will make future borrowing more expensive. A responsible savings safety net prevents this long-term problem.
Most financial advisors agree that you should hold at least three months of operating costs in a reserve. So add your emergency fund to your monthly operating costs, much like any other bill. Place 5% of your income into a designated reserve each month, and watch your safety net start reaching the desired level.
Lacking Insurance Coverage
Insurance is one of the most important necessities for businesses, yet most business owners choose to purchase the minimum amount needed. As a result, they overlook additional policy options that could help in a time of need.
For example, have you ever wondered what might happen if your business was struck by a natural disaster? According to a survey by Nationwide Insurance, 7 out of 10 small-business owners do not have business interruption insurance, which provides financial protection during these crises.
Considering 1 out of every 4 businesses never re-open after a major disaster, you might spend a little extra time with your insurance agent to protect where you are vulnerable.
Confusing Business and Personal finances
Blurring the lines between finances is one of the most common and dangerous pitfalls business owners make. It is extremely easy to use the same accounts and credit cards to make purchases for both personal and business use. Mixing these finances creates a significant personal liability problem.
Separating finances safeguards personal assets, builds the business credit profile, and eliminates potential problems with the IRS. One simple way to start separating your finances is to create two different spaces for receipts. Keep all of your business receipts in the office. Take your personal receipts home.
Poor System of Expense Tracking
We are relieved to work with business owners who actually have a system for tracking expenses. Even when expenses are tracked, they are often disorganized. We understand, tracking expenses can seem like an excessive amount of work, but it is the only way to have a consistent understanding of your financial picture.
Good book keeping shows where a business is wasting money, gives insight into advantageous changes, and ultimately leads to strong financial awareness. To make tracking expenses easier, use an app like Foreceit to scan and record receipts. It is free, secure and stores your data in the cloud.