7 financial mistakes every small business must avoid

Statistics show that 66% of small businesses struggle financially, and 60% have $50,000 in debt.

As a small business owner, you must be wary of all possible mistakes to avoid facing similar issues. After all, you don’t have enough resources to deal with the consequences of these mistakes. So, let’s get started!

No savings for emergencies

Small businesses are at the highest risk of facing emergencies. After all, you don’t know which areas of your business will unexpectedly need more funds. So, it’s always important to set up an emergency fund.

Here are some possible ways you need to set it up.

  • Your appliances and machinery may need servicing.
  • The supply chains may get disrupted or fail to maintain a seamless flow of goods/services.
  • You/your team might not have properly estimated certain expenses.

Even if your company has not started making great profits, this fund will be like a security net for unexpected problems. Conversely, if you don’t make this fund, you may be in deep trouble when any unforeseen expenses arise.

Ignoring cash flow budgeting

Since small businesses have just started, they only track profits and losses. However, they never track their incomes and expenses (i.e., the cash flow). Even if they do, they just note it on a writing pad and forget about it.

Cash flow tracking can help you better forecast your income for specific seasons. It is also necessary for long-term financial planning.

Tracking this will help you guess some extra annual or quarterly expenses and stay prepared for the next time.

Moreover, most small businesses fail when the owner runs out of funds. This happens because the owner doesn’t have a realistic sense of cash flow.

Not seeking business registration services

Business registration is a complex process. There is simply too much paperwork and regulation to remember, which can often lead to the risk of submitting forms with errors.

You may even miss benefits like tax incentives if you aren’t updated about the latest regulations. For instance, your company will have to pay about 26-30% taxes compared to the 45% tax rates for individuals.

So, seek a trustworthy service provider to register a company with reasonable prices.

Cutting short-term costs

If you cut short-term costs, there’s a high chance you may have to pay a huge amount in the long run. Always make smart investments earlier to benefit more.

For instance, consider inventory management. Small business owners want to do it manually, saving money in every nook and cranny to increase their overall revenue.

However, as the business grows or newer responsibilities add up, manual management proves inefficient. Even the smallest mistakes and errors can turn out to be pretty expensive.

So, it’s best to rely on inventory management software or a dedicated staff to handle such work.

Not planning income taxes on profits

Inexperienced and growing entrepreneurs lack a broad perspective on how businesses work. They primarily focus on sales and marketing and neglect tax planning.

Eventually, such grave mistakes can lead to a huge amount of pending income tax at the end of a financial year. If they don’t notice, they might even have to pay huge penalties.

This leads to the depletion of emergency funds, followed by more financial troubles. So, plan your income taxes on profits and strategy as well.

No data for goals management

Most small businesses do all activities manually. Usually, the owners try to do everything by themselves – even if it’s as detailed as managing and tracking goals.

However, this consumes a lot of time. Instead, owners can undertake much more productive tasks if they manage these through data.

Therefore, technology can align all cash flow information, profits, losses, and burn rates in one place.

Besides that, create digital scorecards for every department (or employee if you have only a handful of them) and show them how certain key performance indicators impact the budget and revenue.

If you manage your goals and expectations through data, your employees’ and business’ performance can improve faster. Employees will understand where to focus more and become more motivated.

Not paying yourself

Entrepreneurs often pay every other employee and payable party first, secure funds for the business, and then focus on themselves. They feel guilty about being selfish when they pay themselves first.

However, for long-term success, every entrepreneur must focus on themselves first. You won’t feel demotivated when you don’t put aside enough compensation for your hard work. So, use that cash to treat yourself and prevent yourself from burning out.


Money mistakes are pretty common in new businesses. However, it’s always better to be more aware and avoid them completely. This way, your business will sail smoothly and grow faster!


Share This: