As a business owner, you must know that there’s nothing more terrifying than showing up at the accountant’s room at the end of the year and seeing a box full of crumpled receipts and nine of your last ten bank statements.
To avoid that nightmare, here are some common business financial mistakes you should know and avoid – whether you’re a home-based repair business or a multinational corporation.
#1. Not setting a clear budget for the business
In this competitive marketplace, it’s almost impossible to run a business without a clear plan for the future. So, without a well-designed budget insight, it’s easy to get carried away and spend too much money or spend it in the wrong places.
A solid business budget allows you to determine if your business costs are essential or just optional. A budget also gives you a clear picture of your finances to better decide how much money you can spend on specific projects or campaigns at the right time and in the right way.
This way, you can manage business finances efficiently and refocus any missteps. This, in turn, will get you to increase your profit margins and improve your bottom line.
#2. Mixing personal and business bank accounts
Never mix your personal and business bank accounts or credit cards. This not only blurs the lines between personal savings and business revenue but also confuses your accountant.
Having separate bank and credit accounts makes it easier to monitor financial health and avoid any overlap between what you personally earn and spend and what your business generates and spends every month.
By all means, separating personal and business bank accounts from the very beginning helps determine actual profits and losses for the business.
#3. Ignoring tax obligations
Another business financial mistake is ignoring tax obligations. As a business owner, you must be aware that now you’re self-employed. It means you no longer get your taxes deducted from each paycheck automatically.
Now you are responsible for taking the initiative and paying the total tax obligations on your own throughout the year. One of the handiest ways to stay on top of your tax obligations is to pay your taxes each quarter. This way, you will not get a hefty expense from a massive tax bill come April each year. Additionally, paying your tax will also help you understand the business financial situation from month to month.
#4. Making big purchases at once
Many business owners tend to make sure they leave no stone unturned when it comes to growing their businesses to stand out from their competitors.
Their goal here is mostly to attract as many prospects as possible. In this situation, they spend thousands of dollars on trendy office set-ups or advertising content such as eye-catching explainer videos, promising PPC, splashy website designs, and more.
But, when you make big purchases all at once, especially if you just established the business, that’s where things can get wrong. Therefore, it’s critical to focus on the essentials you need to grow your business first before investing in “nice-to-haves.”
#5. Not planning for emergencies
In this digital landscape, you never know what will happen to your business tomorrow, next week, next month, or in the next couple of years. Unfortunately, many new business owners might think their business will only get better and bigger with time. As a result, they often forget about lean times and financial emergencies that are unavoidable.
Unexpected financial emergencies can decimate your business if you’re not equipped enough to face them. And it’s not that easy to get some help through an emergency fund.
That’s why it’s important to keep an ample stash of savings at hand for unexpected times and emergencies. Then, when something unexpected happens, you will not let yourself and your business high and dry since you have already prepared for it.
Essential tools to manage your business finances
Of course, managing business finances is a back-breaking job and not the easiest thing to do – especially if you have zero experience in accounting and lack strong financial literacy.
But, thanks to the internet, now you can use online tools or software to eliminate any headaches while managing your business finances.. Here are some essential tools you might want to consider using to manage your finances effectively.
- Fyle: This tool provides you with a robust budgeting solution for all business expense needs. With Fyle, you have complete control of your budgets as well as every step of your expense management process.
- QuickBooks: It’s a feature-packed accounting software that allows you to perform basic accounting tasks, invoicing, tax preparation expense tracking, and client/vendor contact management.
- LivePlan: This tool allows you to see a snapshot of your business’s overall financial health. It also helps you track key performance indicators (KPIs) to measure whether your finance is performing well or not.
- Float: You can use Float to measure your cash flow regularly. This way, you will get your business prepared for any financial eventuality.
In a post-pandemic world, business have to be all the more vigilant about their financial health. They need devise a future-proof system for managing business finances. Not just for financial reporting, but also to improve the quality of financial decision-making.