When you are running a business, it can be all too easy to make small financial mistakes for whatever reason. Be it due to you not understanding how to manage your business finances or simply because you have poor money management skills, finding yourself in financial hot water can be all too easy if you’re not careful. With the statistics showing that over 80% of failed businesses do so due to cash flow issues, ensuring you are not making major financial mistakes is vital to help you support your business as it needs you to.
But what are these cash flow mistakes and business finance errors you need to avoid?
Failing to Get Expert Help
If you are not getting expert help with your finances due to the cost and your final difficulties, there is somewhat of a touch of irony about that situation. The reality is that unless you are a financial expert running a business, there will always be things you don’t know or are unequipped to deal with concerning your business finances.
Hiring a professional can help you minimize mistakes, get a more comprehensive overview of where you are and what risks are present in your business in relation to your finances, and ensure that all aspects of business finances are being handled correctly, i.e., payroll, taxes, paying vendors, and balancing the books, for example.
But what type of help should you seek to ensure you’re staying on top of your money situation?
Certified public accountants can be instrumental in helping you with tax planning or spotting final trends and steering you clear of disaster. At the same time, bookkeepers can typically record your financial transactions using high-end accounting software. You can also hire freelance financial professionals in-house to help you stay in the black and out of the red to support growth and make savvy business decisions. Alternatively, you can integrate software or look for the best outsourced accounting services to help you track all of your incomes and expenditures to streamline your finances.
Mixing Personal with Business Finances
Mixing personal finances with business finances is a major no-no for all businesses. Doing so can land you in hot water sooner rather than later.
While this isn’t too prevalent in larger organizations, for smaller businesses, it can be quite common for this to become blurred and all money to merge into one pot. However, it might be easier, especially in the beginning or when you are picking up essentials at Costco, for example, to just merge transactions together, but when it comes to tax season, it can get complicated really quickly. This can lead to personal liability for business debts and tax complications, making it difficult to track business performance and profitability.
Start by having separate businesses and personal bank accounts. And don’t use them interchangeably. Have all of your business payments and invoices run through your business account and then pay yourself a wage from the takings of your not tempted to dip into business money to pay for personal expenses and vice versa.
When you shop, make sure to separate purchases for your personal use from those for your company so you can keep accounts separate and have a better grip on your finances.
Not Billing ASAP
You need your clients to pay you and pay on time. It’s a stipulation for all businesses, as without prompt payments, you won’t be able to pay your own bills and expenses, and this will leave you struggling. If you do not send out invoices for payment as soon as the work is completed, then you further reinforce poor final habits and risk cash flow issues that can land you as another business with poor cash flow and part of the failed business statistics. You do not want that. In a nutshell, delayed invoicing can lead to delayed payments, which can, in turn, affect your ability to meet your own financial obligations.
Ensure that you have efficient billing practices that send invoices automatically for work completed, have specific agreements and payment terms, and use reminders to encourage people to pay on time or ensure they haven’t missed your invoice. This will help you track payments better and ensure you’re not struggling because people are not paying or taking longer to pay because you didn’t invoice them right away.
DYing Taxes
Hiring professionals to pay your taxes is costly; we get it. However, neglecting to do just this can be a bad idea for small businesses and large corporations alike. If you are completing a simple tax return, then using tax software can be helpful and exactly what you need. But once things start to get a little bit more complicated, i.e., with payroll for employees and dedecutions, then it’s best to consult with tax experts who can guide you through the process.
This stops you from accidentally submitting the wrong figures, missing tax breaks you are entitled to, or paying incorrectly. Because the last thing you want to do is find yourself in hot water with the IRS.
Incorrect Employee Classification
Do you know the difference between employees and contractors? Are you using both or just one? Do you know how to classify employees for your payroll taxes? If you’re not doing it correctly, you could be risking your business. There are huge fines and penalties levied against businesses that knowingly or unwittingly misclassify employees, and it’s important you understand the difference. Misclassification can lead to legal issues, fines, and penalties and can also affect your employees’ entitlements and benefits.
For example, if you have someone working for you 40 hours per week, you pay a salary, they get health benefits and other perks, and they are full-time employees. If you only pay a person per work completed on an infrequent basis and you don’t pay them a salary but per project, they’re a freelancer or contractor.
Once you have determined this, you need to complete the correct payroll forms, i.e., full items. Employees need to fill out the W-4 form, and contractors need a W-9 form.
Not Tracking Expenses
This is a common mistake that no business owner should make. If you are audited by the IRS, you need to be able to provide documentation for everything submitted on your tax form so you can prove you are making your claim correctly or in good faith.
Not tracking expenses can lead to missed detection, rejection of your tax return due to errors, and poor cash flow across the company. Use accounting software or services to help you track all your spending and expenses so that every single cent is recorded and not missed, resulting in more efficient financials and a clever overview of your situation.
Neglecting Budgeting and Forecasts
If you have budget control in place or haven’t conducted a final forecast, how do you know what you can and can’t spend, how much money you are making, and where you need to make changes to support the business?
Effective financial forecasting means using figures from previous years’ income and expenditures to help you plot this coming year’s activity, identify shortfalls and slow periods, and allocate funds where they need to be based on previous habits and spending.
Take the time to run through the finances and use them to put a forecast in place. Then, use this forecast to set your budget and improve your cash flow so you’re not spending too much money when you have it and not accounting for quieter periods, leaving yourself and the business struggling.
