5 Common Money Mistakes Small Business Owners Make (And How to Fix Them!)
- Humairaa Moola
- Mar 17
- 6 min read
Running a small business entails wearing multiple hats,— marketing, customer service, daily operations, staffing, sales, financial management, and more! However, amid the myriad responsibilities, financial missteps can occur without even realizing it. In this post, we'll explore five common money mistakes that small business owners make and provide actionable solutions to rectify them.
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For entrepreneurs who want a better understanding of the financial side of their business without spending hours going down a google rabbit hole just to surface feeling confused, stressed & overwhelmed. If you're a small business owner who has ever worried that you're living beyond your means or felt unsure of how much you can spend, you need this guide.
The strategies in this guide are based on the success I've seen with my clients. When you adjust your mindset and understand the financial side of your business, you're going to stress less and spend with ease!
MISTAKE #1: MIXING YOUR BUSINESS AND PERSONAL ACCOUNTS
One of the most common mistakes small business owners make is mixing their personal and business transactions in the same bank account. Even if you’re the only person in your business right now, you should still have separate bank accounts for your personal and business finances.
Also read:
Why it is important to separate your business and personal finances
How to keep your business and personal finances separate
To open a business bank account, you’ll need a couple of documents to get started in addition to your IDs. For one, you’ll need an Employer Identification Number (EIN), which is a number assigned by the IRS for your company that is similar to a Social Security number (US) You can obtain an EIN for free by filling out the EIN application form on the official IRS website.
You’ll also need the organizing documents for your business, which you can get from your Secretary of State (US)/ CIPC (SA) website after you’ve registered your business.
Depending on your location and the legal structure of your business, you may need additional documents. Check with the bank you’ve chosen to open your account with to see if you’ll need to gather any more information.
Having separate business bank accounts will make it easier to categorize your expenses, track your cash flow, measure the profitability of your business, and file taxes. If you’ve already been operating your business with a combined personal and business account, don't worry! Take the step today to open a business account so you can start to get organized.
MISTAKE #2: ACQUIRING CREDIT CARD DEBT
Just like with your personal finances, it’s (generally) important to only spend the money you have. After separating your business expenses from your personal expenses, you’ll be able to monitor your monthly cash flow in the business. If you’re in the red — meaning you have more expenses going out than revenue coming in — it’s time to reevaluate your business budget.
Business credit cards can come with benefits such as cash back and travel rewards, and they also make it easy to purchase materials or supplies you need before your invoices have been paid. But if you use a business credit card, make sure you’re only spending what is truly necessary for your business and that you can pay off the balance in full every month.
I do want to distinguish between amassing unnecessary credit card debt and strategically taking out small business loans that allow you to invest in your business. There may be times when it’s appropriate to take on some debt — in the form of a loan, not a credit card purchase — to launch or uplevel your business in a way that will help you grow sustainably.
MISTAKE #3: NOT HAVING AN EMERGENCY FUND
Emergencies don’t just happen in your personal life — they can also impact your business. As you start to generate revenue with your business and increase your profits, you need to build an emergency fund specifically for your business in case you experience a loss in revenue or face a large unexpected expense.
For example, maybe your profits dropped unexpectedly for a few months and you need some time to reevaluate your marketing strategies. Or perhaps an important piece of equipment broke, and you need to replace or repair it.
Any number of things could happen to your business that temporarily interrupt profitability, and you’ll want to make sure you’re prepared to keep paying your expenses and running your business if that happens. Unexpected expenses are just a part of life, which is why you need to build an emergency fund for your business.
Don't worry if you don't have a big emergency fund right now! Just open a business savings account and develop a plan to build your emergency fund gradually over time.
MISTAKE #4: NOT CREATING A BUSINESS BUDGET
If you want your business to succeed, you need to create a budget that’s designed specifically for your business! Budgeting is essential for financial success in both your personal and business life. When running a business, there are many financial obligations you need to take care of and plan ahead for, such as:
Supplies for production
Equipment
Payroll
Insurance payments
Tax payments
Utility bills
And more
Many of these are expenses you have to pay every month, regardless of the cash flow coming into your business. Others are one-time expenses that you may not have to pay for each month, but that you’ll have to plan for every year or couple of years (such as equipment replacement).
It’s not uncommon for your cash flow to have high and low points throughout the year, which is one reason why it’s essential to budget. Additionally, because not all expenses happen monthly, it’s important to have a plan for large expenses before they come due.
With a solid business budget, you’ll be more prepared to take care of your expenses no matter what’s happening with your cash flow. Budgeting is essential for keeping your business afloat and thriving!
Also read:
How to create a business budget in 4 simple steps
5 Steps to Saving for Big Business Expenses
I have designed two templates, with easy, actionable steps to implement your bookkeeping solution.
Template one includes a bookkeeping checklist (summarised) so you can always refer back to ensure you stay on track. I've also included a breakdown of each task with descriptions. It's as though you'll have your own bookkeeper with you through the entire process!
Template two dives into 12 detailed steps to organising your business finances.
MISTAKE #5: NOT GETTING THE RIGHT INSURANCE
Your business is an investment. You've invested your money, time, hard work, and dreams into your business, so you want to be sure that you’re protecting that investment with the right business insurance.
Many small business owners neglect to get the right type of small business insurance or cancel their policies because they don't think they need them. This is a mistake! The type of insurance you need depends on your business. Most small businesses need the following business insurance policies:
General liability insurance
Cyber liability insurance
Worker's compensation insurance (if you have employees)
Motor Vehicle Insurance (If applicable)
The exact insurance you need depends on your type of business. Business insurance is a great way to protect your business and reduce the risk of unpredictable events.
For entrepreneurs who want to easily track expenses (without stress) and be in-the-know about all the best practices that keep more money in your bank account — while less of it falls through the cracks.
PROTECT YOURSELF AGAINST SMALL BUSINESS MONEY MISTAKES
At HM Accounting, we help small business owners get their finances organized, predict possible scenarios, and make plans to prevent or overcome challenges with confidence. To see how we can help you and your small business, email me at info@hmaccounting.online or simply schedule a free 30-minute Discovery Call on my calender - schedule here
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