When you have a whole business to run, it can be easy to overlook the smaller details of your operation, such as managing your finances. Many small business owners make crucial financial mistakes that over time cause bigger problems than expected. Prevent any unnecessary losses in your business by avoiding some of the most common financial mistakes outlined here.
Having the Wrong Structure
The legal entity under which you operate your business can make a huge difference in your finances. If you have yet to move beyond a sole proprietorship, research some of the different structures that could boost your business to see if a change is in order. For example, an MA S corp will give you lower self-employment tax rates, deductions on your company’s losses, and pass-through taxation benefits.
Not Sticking to Your Budget
If you aren't sticking to your business budget, it is likely you will experience some financial difficulties in the future. Make it easier to follow your budget by reconsidering whether you need to adjust it or not. Instead of an annual budget, consider drafting a monthly or even weekly budget for your business. Having your budget within a smaller time frame can make it easier to spot problems, and it allows for easier adjustments on the fly.
Improperly Keeping Track of Cash Flow
If you don't have a system to accurately keep track of your expenditures and earned revenue, it becomes more difficult to plan for future spending. One way to solve this issue is by having a detailed spreadsheet for your cash flow that goes beyond just profit and losses. Take into account forecasted expenditures such as rent and payroll to get a better understanding of your company's cash flow in the big picture.
Not Ensuring Money Gets to You on Time
One common issue is not having a process in place to ensure that you get paid on time. A great solution for this problem is to invest in invoicing software, which will help you keep more accurate books to get paid faster. When looking for the right invoicing solutions for your business, look for one that allows customers to pay online through the invoice and alerts you the moment transactions happen. Additionally, software that allows you to schedule invoices for recurring payments can prevent any missed or late payments.
Not Knowing the Worth of Your Business
If you are planning to sell your business, one potential mistake is being unaware of how much it is worth. The process of evaluating your business can be done by yourself, but it is best to get an appraiser for the most accurate valuation. You can get a general estimate of how much your business is worth, however, by comparing your business to others nearby that offer the same goods or services as you. Combine this with your business's pre-tax and after-tax earnings as well as the value of its assets.
Use Your Finances Effectively
If you can keep a good hold of your expenditures and have systems in place to prevent mishaps, you'll be set up for success with your finances. As a small business owner, one of the best things you can do to maximize the efficiency of your business is to learn from the experiences of other entrepreneurs.
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