Five Common Financial Mistakes Business Owners Make (And How to Avoid Them)
Running a business well means keeping a close eye on your money. But lots of business owners run into trouble with not having enough cash on hand and other financial problems that slow them down. Poor financial management, like not handling cash flow well, is why 82% of businesses fail. The good news, if you know what you're doing, you can dodge these common slip-ups. In this blog, we're going to talk about five financial mistakes business owners often make and how you can steer clear of them.
1. Lack of Cash Flow Tracking
Keeping your business’s cash flow steady is very important. Research from Xero shows that 72% of small business owners have had trouble with cash flow in the last year. With a large percentage of these being serious problems. This shows it’s a common problem. Even though there are good accounting tools for keeping track of money, many business owners still struggle with it. To avoid these problems, it’s important to use good accounting software and keep a close eye on your cash flow. If you monitor your finances regularly, you can deal with money problems early and keep your business’s cash flow healthy.
2. Mixing Personal and Business Finances
Mixing up your personal and business money can make things messy and cause legal issues, which we’d all like to avoid. However, a lot of new business owners fall into this trap. Also, if you have a limited company in the UK, you must keep separate bank accounts by law. Having different bank accounts for your personal and business spending makes managing your money a lot easier and keeps you out of trouble with the law. To protect yourself from legal problems, create separate bank accounts for business transactions, and commit to keeping your personal money separate.
3. Neglecting Tax Obligations
Dealing with taxes can feel overwhelming, but the problems that come with ignoring them will feel worse. If you miss tax deadlines or fail to meet obligations, you can face hefty fines and legal trouble, which could seriously harm your business. Additionally, not taking advantage of available tax deductions and credits means you’re missing out on chances to make your taxes more efficient.
According to HMRC, tax evasion costs the UK economy billions every year. Whether accidental or deliberate, we need to tackle these challenges head-on. It’s a good idea to hire a qualified accountant or tax advisor. These experts know the ins and outs of tax and can help you stay compliant while maximising your tax benefits.
4. Ignoring Financial Planning
Solid planning is key to keeping your business strong, especially during volatile times. The recent pandemic showed us just how much businesses need good financial planning to survive. Still, lots of business owners don’t focus on this, which can put their businesses at risk. If you don’t have clear goals and a solid plan, your business can be hit hard by surprises and changes in the market. Deloitte found that 64% of businesses don’t have a financial plan, which is worrying. To keep your business strong, you need to make detailed financial plans that fit your ambitions. It’s also important to keep adjusting your plans to keep up with what’s happening around you.
5. Over-Leveraging the Business
Relying too much on borrowed money can be risky for a business, especially when the economy is shaky. Borrowing more than you can handle can mess up your cash flow, slow your growth, and even risk your business going bust. With all the ups and downs in the economy, it’s important to borrow money smartly to keep your business safe. Looking at different funding options, such as investors or invoice finance, can be a good change from just borrowing. By mixing up where you get your money from and not just relying on loans, you can lower your financial risks and make your business stronger against economic changes.
Conclusion
To wrap it up, being on top of your finances is very important for keeping your business going strong. If you’re aware of the usual money traps and how to avoid them, you can keep your business growing.
About the Author
John Day brings over 20 years of experience in the financial industry. As the Sales Director at Apollo Business Finance, a specialised invoice finance lender, he is dedicated to supporting small and micro businesses in achieving their financial goals with bespoke funding solutions.
