Owning a small business is hard, and it’s not easy figuring out what you’re doing wrong. Small businesses all across the world are making the same mistakes day after day. But if you’re reading this, then chances are you want to avoid those costly mistakes that could kill your bottom line. As a CPA, I see these mistakes being made all the time – that’s why I’m writing this article. This article will detail the top 5 mistakes small business owners are making and how to correct them.
1) Poor Cash Flow Management
The number one mistake small business owners make is not managing their cash flow effectively, which is the reason most businesses fail. Not knowing your cash inflows (income, financing, contributions from owners) and cash outflows (expenses, loan payments, and distributions) will lead to financial calamity.
Here are some ways to better manage cashflows and ensure the overall financial health of your small business.
- Keep track of your cash inflows and cash outflows and track them monthly (if not weekly).
- Defer paying bills until they become due.
- Send customer invoices promptly and follow up when customers fail to pay.
- Finance major purchases even if you have cash on hand.
- Pay employees bi-weekly instead of weekly.
2) Not Tracking Expenses
Another mistake many small business owners make is not properly tracking expenses. Small business owners are busy and don’t have the time to maintain proper books and records. However, knowing what your expenses are is important when making many business decisions. If you don’t know the cost of your product or service, how do you even know you’re making money?
Although tracking expenses can be difficult, there are several options for small business owners.
- Keep proper books and records (even if it means hiring a bookkeeper).
- Properly categorize expenses and track them as cost of goods sold, operating expenses, or general & administrative expenses.
- Identify major expenses and find ways to reduce these cost.
- Invest in accounting software like Neat, Quickbooks, or any of these great options.
3) Ignoring Sales, Marketing, and Advertising
Many small business owners are great practitioners, but they are not the most savvy salesmen. Knowing the difference between being good at your craft and being good at getting people interested in your product or service is the difference between a hobby and a successful business. Knowing the proper way to use sales, marketing, and advertising is crucial for any small business owner.
Small businesses are often on a tight budget but there are some easy ways to promote your business without breaking the bank:
- Use social media to promote your product or service (you can get hundreds of people to your website with little to no money).
- Use business development and networking to collaborate with other small business owners.
- Spend marking dollars on existing customers to generate word of mouth business (free products or thank you cards goes a long way).
- Create a blog, podcast, or website to distinguish yourself from your competitors.
- Don’t be afraid to hire a salesperson to generate leads and bring in new business.
4) Spending Too Much Time In the Business and Not On the Business
Spending too much time on the front lines and not enough time growing your business will lead to failure and frustration every time. You can be the best chef in your town, but it’s impossible for you to be in two places at one time. How are you going to manage two or three locations if the day to day operations depends on your expertise?
Finding time to work on your business and not just in your business is critical to success. Here are just a few techniques to free up your time to work on growth strategies:
- Hire employees to handle administrative processes.
- Develop daily operational strategies so that the business can function while you’re away.
- Delegate small task to employees in order to free up your time to work on more important business decisions.
- Create a franchise framework for your business so that you can open up several locations or grow organically while being self sustaining.
5) Not Seeking The Help of a CPA or Lawyer
One of the fastest ways to get shut down as a business is to try to do everything by yourself – especially as it relates to the IRS or other government agencies. Not being compliant with federal, state or local rules and legislations can cost a business owner thousands of dollars and can lead to personal bankruptcy.
To avoid penalties and fines you want to seek the help of a CPA or lawyer – but how do you know if you need these services?
- You should seek the help of a CPA to stay compliant with sales tax, payroll tax, and other federal, state and local filing requirements.
- When drafting employment agreements, you want to seek the help of a lawyer to make sure the terms meet federal and state requirements.
- When expanding your business in a new state, you want to discuss with a CPA and lawyer to file all the appropriate documentations.
- Don’t try to file your business taxes on your own. There are several rules and exceptions to the rules that can leave small business owners scratching their head.
As a CPA, I see small business owners making these same mistakes every day. It’s amazing what these easy tips can do for a small business owner’s bottom line and their quality of life. The biggest mistake a small business owner can make is ignoring these common warning signs and not asking for help. Implementing these strategies is proven to boost financial performance while setting up small businesses for growth.