5 Mistakes with Finance Management to Avoid for Your Business
90% of the world’s business landscape is made up of small businesses.
72% of these small businesses are optimistic about their future prospects, but optimism and realism are two vastly different things. If your business is going to be a long-term success, you have to have a strong finance management strategy.
In this post, we’re going to tell you 5 of the biggest mistakes with finance management that you should avoid at all costs. Keep reading, and by knowing what not to do, you’ll see a clear path to financial responsibility and business success.
1. Mixing Business and Personal Finances
The classic mistake that so many small business owners make is mixing their company finances with their personal finances. One of the first things you should do when you start a business is open a business bank account, no matter how small your business is.
Having a separate bank account allows you to easily keep track of your financial comings and goings. Understanding how you’re doing financially is crucial to various aspects of business, not to mention your ability to stay in business long-term.
2. Not Managing Expenses Well Enough
Every business incurs expenses, whether it’s the monthly rent for your brick-and-mortar or web hosting expenses for your eCommerce shop. There are two types of business expenses that you’ll need to keep an eye on – fixed and variable expenses.
Fixed expenses are easy to understand, as they’re the ones that tend to not change from month to month. Variable expenses include things like wages, shipping costs, credit card fees, and raw materials. If you don’t keep a close eye on these, you won’t have a good grasp on your business finances.
3. Not Knowing Sources of Income
On the flip side of things, you have your sources of income. For businesses that sell products and services in multiple ways (ie. a brick-and-mortar shop and an online shop), it’s important to keep track of where the money is coming from.
Understanding your different sources of income will help you make smart business decisions that affect your future. Fail to do this and your company will experience a lack of growth.
4. Taking Finances Into Your Own Hands
When you start a business, it’s likely that you’ll be dealing with your own finances. As you grow, however, bookkeeping becomes a lot more complex and tricky to juggle with all of the other tasks you’re responsible for.
It’s at this point that you should hire someone to manage your money. Plenty of businesses have gone under because the people running them try to do too much for too long.
5. Not Tracking Business Finances
If you’re not even trying to track your business finances, then you don’t have much hope. It can be daunting to teach yourself how to manage large sums of money when you start a business, but it’s integral to your success.
You can learn a lot simply by reading articles online. This profit and loss statement example, for instance, shows you an easy way to track your earnings by looking at your income and your expenses. There are plenty of other pieces out there that can help you with various other business accounting tasks.
Don’t Make Mistakes With Finance Management
These are some of the biggest mistakes with finance management that new business owners make. To avoid them, you have to be willing to dedicate time to learning proper financial management tactics. The good news is that if you manage your money properly, your business prospects go way up.
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