Avoiding common financial mistakes can be the difference between a thriving business and one that struggles to keep its head above water says Michael Osland.
Here are 13 of the most common mistakes businesses make with their finances – and how to avoid them.
1. Not having a clear understanding of your business finances:
Do you know how much money your business is making and where it’s coming from? Do you have a good handle on your expenses? If not, it’s time to get a better understanding of your business finances.
2. Not tracking all of your income and expenses:
Be sure to track all of your income and expenses so you have a clear picture of where your money is going. This will help you make informed decisions about where to allocate your resources.
3. Not having a budget:
A budget is a critical tool for businesses of all sizes. It allows you to track actual results against desired outcomes, identify areas of improvement, and make adjustments to ensure you are meeting your financial goals says Michael Osland.
4. Overspending:
Overspending is one of the most common mistakes businesses make. It can be tempting to splurge on new office space or equipment, but it’s important to stick to your budget and only spend what you can afford.
5. Under spending:
Another common mistake businesses make is under spending. This can be just as detrimental as overspending, as it can lead to cash flow problems and a lack of necessary resources.
6. Not having enough cash reserves:
Cash reserves are critical for businesses of all sizes. They provide a cushion in case of unexpected expenses or slow periods and can help you weather tough times.
7. Not invoicing promptly:
If you’re not invoicing promptly, you’re missing out on critical cash flow. Be sure to send invoices as soon as work is completed so you can get paid in a timely manner.
8. Not collecting payments promptly:
In addition to invoicing promptly, it’s also important to collect payments promptly explains Michael Osland. This means having a system in place for tracking receivables and following up with customers who are delinquent on their payments.
9. Making late payments:
Late payments can damage your business credit score and make it harder to get approved for loans or lines of credit in the future. To avoid this, be sure to pay your bills on time.
10. Not keeping track of business expenses:
Business expenses can add up quickly, so it’s important to keep track of them. This includes both small purchases and large investments. Having a system in place for tracking expenses will help you stay mindful of your spending and make informed decisions about where to allocate your resources.
11. Not planning for taxes:
One common mistake businesses make is not setting aside money for taxes says Michael Osland. This can lead to problems come tax time, so be sure to plan ahead and set aside the appropriate amount of money to cover your tax liability.
12. Investing without doing your research:
Another common mistake businesses make is investing without doing their research. This includes everything from stock purchases to real estate investments. Be sure to thoroughly research any investment before making a commitment.
13. Not having adequate insurance:
Insurance is critical for businesses of all sizes. It can protect you from liability in the event of an accident or lawsuit and help you cover the costs of property damage or loss. Make sure you have the appropriate coverage for your business needs.
Avoiding these mistakes will help you keep your business on track financially. If you have any questions, be sure to speak with your accountant or financial advisor.
Conclusion:
There are a number of mistakes businesses can make when it comes to their finances. Be sure to avoid these common pitfalls by tracking all of your income and expenses, having a budget, and setting aside money for taxes explains Michael Osland. Also, be sure to research any investments you make and have adequate insurance coverage for your business. If you have any questions, be sure to speak with your accountant or financial advisor.
