Montgomery Entrepreneurs: Use These Helpful Tips to Avoid Common Small Business Money BlundersMay 09, 2023
Running a small business is no easy feat. Not only do you have to worry about the day-to-day tasks of keeping your business running, but you also have to keep an eye on the financial health of your company. Unfortunately, many small business owners make critical financial mistakes that can jeopardize the success of their businesses. In this article, the Montgomery Area Chamber of Commerce takes a look at the most common financial mistakes small business owners make and offers suggestions on how to avoid them.
Eliminate Excess Debt
One of the most common financial mistakes small business owners make is taking on too much debt. When you're first starting out, it's tempting to finance your entire operation with loans and credit cards. However, this can be a dangerous move that can quickly lead to financial ruin. Lending Tree reminds you that it's important to only borrow what you need and to always keep an eye on your outstanding debts so that you don't get in over your head.
Choose an LLC Designation
Another mistake that small business owners often make is failing to choose an LLC designation for their businesses. An LLC in Alabama offers many advantages, including personal liability protection and tax benefits. They also offer much more flexibility in how you structure your company than other types of business entities. If you're not sure whether or not an LLC is right for your business, be sure to speak with a qualified accountant or attorney who can help you weigh the pros and cons.
Switch to Online Invoicing
Small businesses often run into cash flow problems because of inefficient invoicing practices. If you're not invoicing your customers promptly and efficiently, you're likely missing out on revenue that could be used to keep your business afloat. Be sure to develop a system for invoicing that works for you and your customers so that you can get paid in a timely manner.
Update (or Create) a Budget
Another common mistake small businesses make is failing to budget properly. Having a clear understanding of your income and expenses is crucial for keeping your business on track financially. Without a budget, it's all too easy to overspend and find yourself in financial trouble down the road.
Be sure to set aside some time each month to review your finances and adjust your budget accordingly. This will help ensure that you always have a clear picture of where your money is going and how much you have available to spend.
Separate Your Business and Personal Finances
One of the worst things you can do as a small business owner is mix your personal and business finances together. This makes it difficult to track expenses and can lead to problems at tax time. Keep your finances separate by opening up a separate bank account for your business and only using it for business-related expenses. This will save you a lot of headaches down the line.
Invest in Inventory Management Processes
Small businesses often run into cash flow problems because of poor inventory management practices. If you're not carefully tracking inventory levels, it's easy to end up with excess stock that ties up valuable cash resources. Be sure to develop a system for tracking inventory so that you can avoid these cash flow problems down the road.
Hire the Right People
Hiring the wrong employees can be one of the biggest financial mistakes a small business owner can make. Not only does it cost money in terms of salaries and benefits, but it can also lead to lost productivity and decreased morale among other employees. Sling recommends that you take the time to carefully screen candidates before making any hires. This will help ensure that you're only bringing aboard people who are truly qualified for the job.
Plan for Taxes
Many small businesses fail because they don't plan properly for taxes. Taxes can take a big chunk out of your profits, so it's important to set aside money each month so that you're not caught off guard at tax time. Speak with a qualified accountant or tax attorney who can help you understand exactly how much you should be setting aside each month.
Review and Revise Your Practices
As a small business owner, it's important to avoid making any major financial mistakes that could jeopardize the success of your company. Even if you feel like your work-arounds are saving you money, they will cost you much more in the end. By following the tips in this article, like reviewing your business status and updating your financials, you'll be on your way to ensuring the financial health of your small business.
Become a member of the Montgomery Area Chamber of Commerce to access our abundant resources that will help your small business thrive!Contact:Ross Buhrdorfoutreach@zenbusiness.com, (512) 765-4985