Every small business owner embarks on their entrepreneurial journey with a vision, passion, and determination. However, amidst the hustle and bustle of operations, sales, and growth, it’s not uncommon for some to overlook the financial aspect of running a business.
Over more than a decade of advising clients, as chartered accountants, we have seen firsthand the pitfalls that can ensnare even the most passionate entrepreneurs. Here are some of the most common mistakes small businesses make and how you can avoid them:
1. Poor Cash Flow Management
The Mistake: Not keeping an eye on cash flow or misunderstanding its importance. Especially as your business grows there becomes more moving parts. Things can become complex and doing rough mental calculations in your head no longer works.
The Solution: Regularly review your cash inflows and outflows. I make a habit of reviewing my debtors and the bank account everyday. In fact, that’s the first thing I do when I come into the office. Also, dedicate time to learn and use forecasting tools to anticipate future expenses and ensure you always maintain a safety buffer for unexpected costs.
2. Skipping Budgeting
The Mistake: Thinking that budgets are only for larger businesses or not reviewing them regularly.
The Solution: Create a realistic budget that aligns with your business goals. Revisit and adjust it periodically, especially when there are significant changes in your business.
3. Neglecting to Save for Taxes
The Mistake: Forgetting to set aside money for tax obligations, leading to a big surprise come tax season.
The Solution: Understand your tax obligations and create a dedicated savings account where a portion of your earnings goes specifically for taxes. This is especially so for GST and PAYE, because you’re just holding it as agent for the IRD.
4. Not Separating Business and Personal Finances
The Mistake: Using a single bank account for both personal and business expenses. This is a very costly and common mistake. Don’t be that guy!
The Solution: Open a dedicated business account. This not only simplifies bookkeeping but also offers clearer financial insights and protects personal assets.
5. Avoiding Professional Help
The Mistake: Assuming that professional financial or accounting advice is too expensive or unnecessary. Whether we like it or not, the reality is that doing business in the modern developed world is complex. There are tons of rules, be it tax or otherwise. The cost of getting things wrong could be terminal. Not spending the money on professional advice is like going to battle without any weapons or armour.
The Solution: View hiring an accountant or financial advisor as an investment. They can help identify potential issues, tax savings, streamline financial processes, and offer expert advice that can save money in the long run.
6. Failing to Plan for Emergencies
The Mistake: Not having an emergency fund or financial plan for unexpected downturns.
The Solution: We all learned from COVID that unexpected things happen. Don’t overextend yourself and build financial safety net. This fund can help you navigate challenging periods without compromising your business.
7. Overlooking Small Expenses
The Mistake: Thinking that small expenses won’t add up and neglecting to track them.
The Solution: Record every expense, no matter how trivial. Over time, these can add up and impact profitability. We use Xero for all our clients, to ensure all expenses are captured.
8. Not having the right mindset
The Mistake: This should really be number one, because above everything else I see this issue the most. Being in business is hard, extremely hard. There will always be uncertainty, problems to solve, and mistakes to learn from. Not having the right mindset is at the core of all the above problems.
The Solution: Develop a growth mindset. Be dedicated to constantly improve yourself professionally, mentally, physically and spiritually. Always look at solutions, not problems, be positive and learn from your experiences. Remember, if it’s easy, then everybody would be doing it!
Every entrepreneur makes mistakes; it’s part and parcel of the learning process. However, being aware of these common financial pitfalls can save you time, money, and potential heartbreak down the road. Always remember, sound financial management is the backbone of any successful business.
For the purposes of the interest limitation rules, a “New Build” will be defined as a self-contained residence that receives a CCC (Code of Compliance Certificate) on or after 27 March 2020.
The government announced a raft of policies on 23 March 2021 (yesterday) aimed at the housing market. Out of the announcement, there were some tax changes that will significantly impact on property owners and investors. The changes are: The current bright-line period...
There are some recent updates and changes which have been made to tax-loss continuity rules in light of the recent resurgence of Covid-19 in 2021. These changes are aimed at understanding the needs of businesses to raise additional capital to stay operational. The...
Stay Up to Date With The Latest News & Updates
Join Our Newsletter
Stay up to date with all of the latest news and insights related to your business. Sign up below and we promise to only send you content