The overall financial health of a small business is an important indicator to help determine the current financial status as well as potential success or failure in the future. Are you planning to start a small business, or are you already running one? Below are some of the financial mistakes you should be aware of that small business owners make.
1. Mixing Personal Funds and Business Funds
Most small businesses and start ups make this huge mistake often. Not maintaining separate bank accounts for personal and business finances can cause financial issues in the nearest future.
2. Not Maintaining Proper Accounts
No matter how small a business is, a proper record of accounts from income and expenditure must be kept. In other words, there must be a proper bookkeeping system in place.
Time and money are two important factors a small business owner should be over protective of. Whereas, large companies make mistakes with over hiring and manage to get away with it, it is not so easy for a small business owner. A small business owner should focus on having a small productive team instead of hiring hands that are not up to the expected standard.
4. No Revenue Reserves
Just as a revenue reserve is important to salary earners, so also is it important to businesses. It is necessary for small businesses to maintain a revenue reserve because a revenue stream is anything but steady, and you may never know when the stream runs dry and there’s nothing to fall back on.
5. Lack of Forecasting and Budgeting
Forecasting and budgeting simply has to do with planning. Therefore, having a laid down plan of action is essential for your business. An income forecast and an expenditure budget goes a long way in ensuring the sustainability of your business.