As entrepreneurs, there’s always a tendency to be a little braggadocious about all the things going well in our business. We never really talk about the mistakes we make.
But here’s the thing: Mistakes are how we learn!
I come across a number of common mistakes that business owners make over and over when it comes to money. I want to go through them and give you the tips you need to avoid the fallout.
Mistake #1: Mixing Business and Personal Funds
This is a big no-no in the small business world, but it’s so common to see. Having a single checking account that you use to pay for business-related expenses AND personal spending can seem easy. It’s actually an easy way to get yourself into a financial mess!
If you need to use business funds to pay for personal spending, that’s fine – just make sure you’re giving yourself a draw.
Simply paying yourself the necessary amount of money from your business account into your personal account is going to make things so much cleaner and easier. Sure, simply swiping that business debit card for your mani-pedi might seem like no big deal. But it can cause serious problems down the line:
- You could find yourself in a bit of legal hot water if you commingle your funds
- It’s going to be much harder to track your business spending
I always urge business owners to have a separate business checking account, but it may be the case that you’re not eligible for one right now (like you might not be an LLC). If so, open a second personal account but make sure you only use it for business transactions!
Mistake #2: Failing to set up a bookkeeping process
Most of the entrepreneurs I talk to are so passionate about discussing their operational business processes. But when I ask about the financial ones? Crickets.
They all understand the importance of having a workflow in their day-to-day business operations – so why not a financial workflow too? Running a successful business can take a lot of time, and so financial processes can get put on the backburner.
I need to drop a truthbomb here: bookkeeping is not optional.
For a lot of us, bookkeeping isn’t in our Zone of Genius, so we bury our heads in the sand. This is exactly the reason you need a system in place to track your business finances. If you don’t have a system, then there’s two things you can do:
- Teach yourself the essential skills to manage the books for a profitable business by signing up to my Profit Perfect self-led online course
- Outsource to someone who lives for this stuff! (If you’re thinking of outsourcing, drop me a message or comment, I would love to chat!)
Mistake #3: Failure to respect that Cash is Queen
The number one reason that businesses go under is because of cash flow problems. It might surprise you to learn that even profitable businesses can suffer from issues with cash flow.
You might be wondering ‘How is that possible?’
The answer is timing.
Let me give you an example: Your business brings in $30000 revenue each month, and has expenses of $28000. That leaves you $2000 profit.
BUT if you only bring in $5k in the first week of that month, and your expenses come to $10k, you have a profitable business with a cash flow problem.
A lot of entrepreneurs I see have to do a mental warm up before checking their bank accounts. Deep breaths, beating heart, mild panic…
If this sounds like you, then you need to be tracking your cash regularly. Weekly is ideal. It’s essential that you’re aware of exactly what and when funds are moving through your account, because Cash is Queen and it can make or break your business.
Mistake #4: Failing to Budget
Ok. I said it. The B word.
A lot of business owners react to the word ‘Budget’ in a similar way to the word ‘Diet’. We don’t like to be restricted, especially when it comes to the decisions we make with our money.
I want you to reprogram that mindset and understand that a budget is NOT here to stop you spending, but to help you expand.
You need to be organized and strategic with what is coming into and out of your bank account. You need to set goals and stick to them. By taking ownership of your business spending, rather than just flying blind, you’re going to be able to get your business to where you want it to be.
Mistake #5: Underpricing
A common money mistake I see in business is setting prices based only on Cost of Goods. A lot of business owners forget to take into account their operational expenses. I discussed the issues with setting pricing in this blog post, but the main point to remember is that you’re not only paying out for costs.
You have overheads, maybe a team on payroll.
And you need to pay yourself.
Mistake #6: Forgetting to Pay Yourself!
I get on calls with business owners all the time who are feeling like it’s not working for them. They’re putting in more hours than ever before and haven’t paid themselves in six months.
Entrepreneurial poverty is real, and if you’re working under the belief that you don’t need to pay yourself, you will burn out. You’ll forget the reasons you started a business, and this whole entrepreneurial journey will be ruined for you.
Grab your free copy of my Profit Plan tool to start crunching your numbers so you can see exactly how much you can pay yourself!
Mistake #7: Trying to do #allthethings
I’ve talked before about making sure you Delegate to Elevate in business, because you simply cannot do it all alone.
You need to be focusing on the tasks that are within your Zone of Genius, the ones that will move the needle on your profits, and start to hand over the tasks that aren’t. Two questions you need to be considering are these:
- What am I really good at in my business?
- Does it bring in monetary results?
Making sure these two answers are aligned is what’s going to elevate your profits!
Mistake #8: Hiring too Quickly
This might seem like a contradiction to #7. YES, you need to delegate some of your tasks. But you need to make sure you’re hiring the right person for the job.
Rather than simply throwing money at problems and hoping they go away, take time to ensure the person you’re bringing on to your team brings something to the table, is the absolute best person for you and your business.
After all – it’s your name on the metaphorical door right? The buck stops with you.
Mistake #9: Failing to Automate
I’m actually going to be bringing you an in-depth blog post soon on the importance of automation in your business, but I want you to take away this:
Time is Money. It’s our greatest currency. For every task you undertake, it’s costing you time, energy and/or money.
Money and Energy we can always replenish, but you can never get back the time you’ve spent. Saving yourself some time through automating your business is ultimately going to be bringing you more money, which means more profits – which is what we all want, right?
I hope this post has been useful in helping you understand the mistakes that it’s so easy to make as an entrepreneur. I hope it’s even given you pointers on how to avoid these pitfalls. If you’re a visual person, I talk through this in detail in this week’s YouTube video, but as always, I would love to hear your thoughts.
Check out my website to learn more!