I’ve worked with a lot of business owners; if I had $1 every time they made a financial misstep, I’d be a billionaire by now. Because even though many business owners are smart and skilled, they’re not all financially savvy. That’s where I come in.
I’ve noticed there are a few mistakes that most entrepreneurs make – over and over again. This is why I use these mistakes as the framework for my work with my clients. Because I know these mistakes are likely to crop up, I address them head-on.
If you’ve made any of these mistakes, I don’t want you to feel bad. This isn’t about guilt or judgment. I’m not here to make you feel stupid. If anything, the fact that so many business owners repeat these same mistakes should give you some comfort. We’re all in the same boat.
But we can learn from these mistakes. So read on to see the top 5 money mistakes business owners make, and what to do about them.
Mistake #1: Not Knowing Their Numbers
I know I keep saying this, but I can’t stress it enough. If you want to run a successful business, you’ve got to pay attention to the numbers in your business. And specifically the “money-related” numbers. This means your revenues, expenses, profits, assets, liabilities, cash and a whole bunch of other digits that tell you a whole heck of a lot about how financially fit your business is.
There are 3 major benefits to staying on top of your numbers:
- Notice issues or errors that may cost you money, now or in the future
- Identify opportunities to save or make more money
- You have the data you need to make better business decisions
All 3 of these benefits have the same result – they put more money back into your business. Who doesn’t want that?
What’s the fix? Establish “money meetings,” where you check in regularly to see how your business is doing financially.
Mistake #2: Not Paying Estimated Taxes
I know you were hoping we wouldn’t talk about taxes, but here we are. No matter where you’re located, it’s likely your business is subject to some form of taxation (and oftentimes, several forms).
You’ll save yourself a lot of time, money and stress if you stay on top of your taxes. Trust me. I had a client lose her entire business because she was behind on her payroll taxes.
One of the biggest mistakes I consistently see business owners make is to not pay estimated taxes. Estimated taxes in the U.S. are due on a quarterly basis (can be monthly or semi-annually in other places).
Who has to pay quarterly taxes? I wrote an entire blog post on that, which you can find here. Anyone who has income and does not have taxes withheld otherwise (such as an employee having taxes withheld from their paycheck), has to make quarterly tax payments.
It doesn’t matter if you’re an LLC or a freelancer hanging out your shingle. It doesn’t matter if you aren’t “making that much money.” And no, it doesn’t matter if you didn’t know you had to pay them. Yes, I’ve actually heard that used as an excuse for not paying before.
So if you are making money and are not otherwise paying taxes into the tax system on that income, you’ll likely need to make estimated tax payments. Don’t ignore this – the penalties for doing so can add up real fast.
What’s the fix? Pay your quarterly estimated taxes! Not sure how to do that? Check out the blog post here.
Mistake #3: Not budgeting.
I work with a lot of clients who don’t know how to allocate the money they have coming in. When a client asks me what to do, the first question I ask is – “What does your budget say?” Because the truth is, most of my clients don’t have a budget. They look at the cash in their bank accounts. Or they look at the cash they have coming in. And that’s how they decide whether or not they can afford something based on those amounts.
This fails to take into consideration what happens to all the other obligations coming up. And what happens if that money never comes in. And what happens if next month, their revenues are down or their expenses go up.
Budgeting tells you how you can spend your money today and over time. It gives you an overview of what money you have coming in and out. It shows what you can pay yourself, invest in the business, save or spend.
How can you possibly know if you should spend money if you don’t have a budget? You can’t. It’s just that simple. Checking how much cash in your bank balance as the determining factor for your spending decisions is the best way to sink your business, FAST.
What’s the fix? Create a budget! Start simple and make it in Excel or on a piece of paper. Focus on the budget for this month, and you can expand it over time.
Mistake #4: Not Tracking Cash Flow.
While we’re on the subject of cash, let’s talk about cash flow. Cash flow is the flow of cash in and out of your business over time. And for small business owners, cash is really king, because most of you don’t have easy access to credit lines or other funding as a gap between cash infusions.
Candidly, I’ve never found a tool I like that adequately tracks cash flow, so I’ve created my own spreadsheet. While, it’s not pretty or fancy, but it gets the job done. The most important thing is to make sure you are in fact tracking the cash.
I recommend doing this on a weekly basis at first until you get a better sense of how and when your cash is coming in and out. Tracking your cash flow doesn’t have to take up hours of your day – simply look at what cash you have coming in, what cash is going out and what’s leftover. Over time, try to track this further and further out so that eventually, you have cash flow projections for the next 3 months, 6 months, etc.
What’s the fix? Track your cash flow! Start simple and expand it over time.
Mistake #5: Not Focusing on Money Mindset.
I was never big on mindset as I thought I had a pretty healthy one. I’m confident, assured and generally don’t let fear get in my way.
But then I started my business.
And that’s when I realized we all have money mindset blocks that, unless dealt with, are going to rear their ugly heads and hold us back from building wildly successful businesses.
What do money blocks look like? Some examples are saying any of the following:
- “I don’t think I can have a [5-figure, 6-figure, 7-figure] business.”
- “I’m worried I’m going to run out of money and have to go back to a 9-5 job.”
- “If that client fires us, I don’t know what I will do.”
Money blocks exist because of experiences that we’ve had in our lives, and those blocks shape our beliefs which can have a significant impact on our ability to show up, project our value and make more money in our businesses.
While I believe a strong strategy and proper execution is the key to success in business, I also think money mindset plays an important role. If we don’t acknowledge our money blocks and the impact they’re having, we’re holding ourselves, and our businesses, back from true success.
What’s the fix? Start by acknowledging your money blocks and beliefs and the impact they have on your business. Then you can work on reframing those beliefs into more positive ones. Want more help in this area? Check out my Master Your Money Mindset Masterclass.
Learn from those who have come before you. I see business owners making these 5 mistakes DAILY and it makes me want to scream. By avoiding these 5 mistakes, you’ll be well on your way to running the financially fit and crazy successful business of your dreams.