5 Financial Mistakes Business Owners Make and How to Avoid Them in 2023

Running a business can be a daunting task. For the owner, managing the finances is even worse, especially for one without a CFO. Understanding cash flow management will keep the business profitable and sustainable. In this blog, we’ll cover five common financial mistakes owners make and how to avoid them.

Summary

  1. Failing to Set a Budget
  2. Not Keeping Proper Financial Records
  3. Ignoring Cash Flow Management
  4. Tax Planning Failure
  5. No Long-Term Financial Plan

Failing to Set a Budget
One of the most common financial mistakes business owners make is not setting a budget. Without a budget, you are flying blind every day. You won’t have a clear line of sight into the short-term cash needs of the business. Some people can manage this better than others. Know your limits. Take the time to create a simple budget, either on paper or in Excel, with expected income and expenses. Take it one step further by planning over a certain period of time, say 2-6 months.

Not Keeping Proper Financial Records
Failing to keep financial records can make it difficult to track the health of your business. For cash-strapped companies, download the bank data into Excel each week. Then, keep a running total of inflows and outflows by category. You can always clean it up later with a bookkeeper or by using accounting software.

Ignoring the Importance of Cash Flow Management
Cash flow management is essential for any business. Though owners will often overlook this by focusing on tasks that don’t move the needle. Even with business booming, failing to manage your cash flow can lead to a serious situation. One where you have money tied up in accounts receivable, while at the same time struggling to pay your bills. Make sure to track your cash flow and plan any upcoming activity that could cause a bottleneck.

Failing to Plan for Taxes
Taxes are a significant expense for any business. We’ve seen firsthand where failing to plan for them can lead to unexpected costs and penalties. Be sure to plan for your taxes in advance by estimating tax liabilities and setting aside funds. Consider getting the opinion of a tax professional to review all potential deductions and credits.

Not Having a Long-Term Financial Plan
Finally, many business owners fail to have a long-term financial plan in place. We’re not talking about a 50-year plan here, but even the biggest companies in the world have 3-5 year projections. Don’t sweat the details, but consider making day-to-day decisions with that 30,000-foot view in mind.

In conclusion, managing finances can be challenging. Though, a little planning goes a long way – especially with taxes and cash flow. By avoiding these mistakes, owners can ensure that they are on the right track. Avoiding these mistakes will not save your failing business, but they might just keep you from getting to the point of failure in the first place.

Best of luck and Godspeed.

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About the author

Clarity Cash Flow is an online resources with a mission to provide business operations with the best cash forecasting and treasury management information available on the internet.

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