Alaska Small Business Development Center

5 Small Business Financial Mistakes to Avoid

March 1, 2015


When starting a business, there are a number of factors that can damage success. Whether it’s a lack of planning or not implementing a marketing strategy, there are key factors that can hurt your business when not executed properly.

Many small business owners often underestimate the costs of running a business or attracting the right customer. According to the SBA Office of Advocacy, only half of new businesses survive for at least five years and only one-third of businesses survive longer than two years.

When the costs of operating a business are ignored in the beginning of a business venture, it can result in disaster for the future. Here are five financial mistakes small businesses should avoid:

1. Not having enough cash.

Small businesses need as much cash as possible when opening their doors. The reality is, there will likely be a period of time before customers start paying your bills. Be prepared to cover all the expenses of running your business without any profit for a few months.

To determine how much cash you’ll need, calculate your operating expenses for the next six months without any profit. This number should help you determine what type of cushion you need to create for your business to stay open.

2. Not following a business plan.

Lacking a plan of action for your business will definitely hurt your success for the future. Every small business needs a business they can follow that will explain their goals, how to accomplish these goals, and the steps to follow to run a successful business.

When creating a business plan, it’s important to create a budget and forecast for the next five years. Although you might feel like you don’t have enough time to work on a budget, it’s one of the most important things you can do for your business. A strong business plan includes how much money you’ll bring in, how money will be allocated, and any additional steps you’ll need to take to guarantee success. By creating a business plan, you’ll be able to avoid a lot of financial mistakes when you open your business.

3. Setting your goals too high.

While it’s great to think big as a small business owner, it’s important to create realistic goals for your business. Regardless of how great your product or service is, you need to think about how people will perceive your business and a realistic income you’ll experience.

Small business owners often think they need to spend a lot of money in order to be successful. The truth is, the best way to reach success to start small. Think about Apple, for example. Steve Jobs didn’t purchase a huge warehouse and hire 50 employees as soon as he started designing computers. In fact, he started out of his garage with a couple of friends and kept working towards his goals until he reached success. Remember, success takes time to achieve, so it’s OK to start small as a new business.

4. Not keeping up with the books.

A huge mistake that will hurt your business is not keeping track of your finances. If you want to know how your business is performing, you’ll need to record all of your finances. You simply can depend on a bank statement to tell you how well your business is doing. It’s absolutely necessary to know how much money you’re bringing in as well as your expenses.

There are a number of resources to help you record your finances as a new business owner. If it’s not in your budget to hire an accountant, consider using a program such as QuickBooks. This is a great way to keep everything in one place for your business.

5. Mixing your personal finances and business finances.

As a small business owner, it’ll be tempting to combine all of your finances into a single entity. Unfortunately, this practice can cause a lot of financial trouble for your personal life and business. When you open your business, create two separate entities for your personal finances and the business. It’s also important to keep track of how much your business should compensate you.

Starting a small business is a challenging yet rewarding venture. By avoiding these financial mistakes, you’ll be able to guarantee more success for your small business.

Have you made any of these financial mistakes?


IvanCafePicWritten by Ivan Serrano- social media, finance and business journalist living in the Bay Area of California


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