Money Mistakes Small Business Owners Should Avoid

There are so many risks that most entrepreneurs face when running their businesses. And most new business owners are bound to make mistakes even after launching operations. The thing is, you can't get everything right. However, some mistakes can cause more havoc than others. A prime example is financial mistakes. Statistics show that nearly 60% of small businesses fail in Australia after three or fewer years, with poor financial structures being one of the most common reasons. Luckily, this article talks about some money mistakes to avoid, especially during the foundational years of your business and beyond. 

1.Failing to be frugal

Understandably, you want the very best for your business. After all, it would be a wise investment as it would improve your business and make it more successful. So, it can be tempting to want to purchase the best technology and software, have the most beautiful office space and hire the best-skilled workers. Although it might give you an advantage, it is expensive to acquire. One of the key tips for handling your business finances is to remain as frugal as possible. You can start by creating a realistic and sustainable budget and invest only in things crucial to your business. 

The next time you are tempted to make expensive financial decisions for your business, why not look into alternative options? You can consider renting the equipment or purchasing a used one. You can also outsource various departments to use the needed skills at a more affordable cost.

2.Not working with an expert

As your business expands, you will start to have other financial issues to deal with. This is because a growing business is faced with new challenges and needs. Therefore, the bigger it gets, the more robust your financial and accounting system should be. Without a proper accounting system, you cannot keep track of the business's financial state. You would also 

suffer from a myriad of cash flow problems. Your lack of financial information will not help develop strategies, and you can easily miss your tax deadlines, which could have dire consequences.

You don't need to be an accounting expert to get things going. The chances are that you likely have a lot of other tasks to give your business's books the right amount of time it needs. One way to stay on top of your finances is by outsourcing a local bookkeeper or accountant with the right skills and experience to help you. 

3.Not setting up an emergency fund

A typical business budget includes fixed expenses that allow you to prepare adequately to meet payment deadlines. But it should also have room for unexpected purchases you will be required to make daily. That's why having an emergency fund is necessary for all small businesses. 

Before you set up your business emergency fund, there is one question you must ask yourself: "What classifies an emergency?" An emergency would be an incident that interrupts the operations of your business. 

Your emergency fund should be a small percentage of your profits. Or you can set up a daily petty cash allowance with a limit for small expenses that need to be handled as quickly as possible. 

4.Not separating your personal and business finances

One of the biggest financial mistakes you can make as a business owner is not separating your finances from your business's. When running a business, you must treat it as an independent entity. As such, you should keep separate financial profiles such as bank accounts and credit and debit cards. 

Once you register your business, you must open a separate bank account so that any income will go directly into it, and all business-related expenses will come from it. The same rule applies to your debit or credit cards. Even if you want to put money into your business from your account, ensure that you transfer it before making a purchase. 

5.Not paying yourself

What are your reasons for starting a business? To be your boss and make some money! Most business owners often do not pay themselves, but not doing so means you are essentially working for free. Likely, you might not also have another source of income.

So, how do you pay yourself? You can imagine how much you would pay someone to do your work to find a figure. The good thing about being able to pay yourself is that it inspires you to work harder to make your business more profitable. 

Mistakes are unavoidable when you're running a business. But sometimes, being aware of the potential mistakes can be a great way to avoid them. Keep these tips in mind when thinking about your business's finances.