…and what to do about it
If you've ever watched The Late Show with David Letterman, then you've probably seen him read his Top 10 list. Well, we’ve put together a list of the 10 biggest mistakes small business owners make that cost them money—and how to avoid them.
Whether you’re losing money due to bad habits, poor planning, or trying to do it all yourself, this list will help you identify the problem areas and start making changes today.
Just imagine Letterman's voice as you read…
#10. Keeping Sloppy Records and Not Knowing Your Numbers
If you can’t find what you need when you need it, or if you can’t quickly and easily find out where you are financially…how can you possibly know if you’re winning or not?
The time you spend looking for information that could be at your fingertips is time (and money) wasted. Get organized, and have a way to see your financial position at a glance.
#9. Failing to Have a Plan
Every business needs a plan—even if it’s a simple one-page document that lays out who you are, what you do, and where you want to go. For your money, that plan is called a budget. Again, it doesn’t have to be anything fancy. Both are essential to your success.
Without a plan or budget, you’re just guessing. And as Yoda (more or less) said: “Guessing is the path to the dark side. Guessing leads to anger. Anger leads to hate. Hate leads to suffering.” See? This is bigger than you thought!
Make a plan. Write down your business goals and map out the steps to get there. Then, create a budget to keep your finances on track. Even if it’s simple, it’s a solid start—and it’s better than guessing.
#8. Confusing Needs and Wants
We all know the difference, but sometimes we just want the shiny things so much that we convince ourselves that we neeeeed them.
Don’t forget, the goal is profit…not a cool new piece of equipment or the latest gizmo. (BTW, collect enough profit now, and you can go get all the shiny gizmos you want someday!)
In the meantime, stay focused on what you and your business really need to succeed. The new Mercedes-Benz Sprinter is definitely a sweet delivery van that makes a statement, but can you get that dry cleaning to your customers in an old Ford Econoline off of Craigslist just as well? Probably.
#7. Keeping Paid Subscriptions Too Long
The gym membership was a great idea (it really was), but when was the last time you actually went? What about those business magazines stacked up on your desk? Are they helping, or are they just… there?
These little expenses can add up over time and steal money and time away from more important things. Do an audit of your subscriptions and see what you can cancel today.
#6. Doing It All Yourself
Anytime a task lands on your desk, ask yourself how much your time is worth.
You’re a hands-on business owner who wants to make sure everything gets done right. But trying to do it all yourself can actually hold you back.
Delegate. Outsource. Let go of the idea that you have to do it all. If someone else could do this task, take the death grip off of your wallet and pay them to do it. Whether it’s hiring a bookkeeper, a delivery driver, or a virtual assistant, getting help with lower-value tasks gives you more time to focus on the big picture.
You’re going to come out way ahead because those things will steal your valuable time in a hurry! So do the things that only you can do, and get some help with the rest.
# 5. Hiring Too Soon, Too Late, or for Too Long
According to the U.S. Department of Labor, the average cost for each bad hire can equal 30 percent of that individual’s annual earnings. That $40,000 assistant you hired after one phone call as a favor to your mom…you know, the one that shows up late, leaves early, and yells at your customers? Yeah, that was a $12,000 mistake.
Take your time. Hire good people. And don’t be afraid to help the bad ones find a better opportunity.
# 4. Failing to Have a Safety Net
Think 'Retained Earnings', 'Emergency Fund', or 'Rainy Day Account'...
Whenever money comes in, set a percentage of it aside so there will be something to catch you when the bottom falls out. Or for when you can save up enough for that shiny gizmo back in #8.
Profit First is a great resource to help you create a financial cushion.
#3. Making Purchases Because “Your Bank Balance Looks OK.”
If your method for deciding whether or not you can buy something is checking your bank account to see if the numbers are positive today…you’re doing it wrong.
Get your business on a budget (or stick to it if you already have one), and use past numbers to do some basic forecasting.
Decide if you really have the money or not. Then if everything looks good, give yourself the green light to buy. Because “Ready, Fire, Aim” is a terrible way to spend your money.
#2. Getting Sloppy on Taxes
You should never be surprised by what you owe and when you owe it.
Your accountant or tax pro can help you keep track of it all. And they should be actively working with you to make sure you are paying the lowest amount legally possible. That way federal agencies with initials for names will leave you alone (hopefully!.
#1. Crunching Your Own Numbers
As your business grows, you need good professionals on your team to help you keep things running smoothly and compliant. Similar to #6, at some point you will no longer be the best person to manage your business finances. A good accountant or bookkeeper can help you stay organized, on track, and in the black.
And they can give you great insight and information to help you make better decisions. So your business can grow, and you can keep giving them bigger numbers to work with!
And the bonus mistake: not being in control of your business.
No matter what, remember that this is your business. You should always be able to clearly understand your financials, your metrics, and your tax situation. You don’t have to be an expert in all of those things…just don’t take your hands off the wheel and blindly turn it all over to someone else and assume they have your best interests at heart!
A good accounting professional will want you in the loop, and they will want to make sure you are making financial decisions that you understand. If not, ask questions! They’ll be glad to take the time to make sure you are comfortable with what your money is up to.
And be sure to keep them informed about things that could have an impact on your bottom line as well. Did you have a kid this year? Did you sell your home? Did your Ford Econoline break down so you’re using your personal vehicle for deliveries now? Don’t assume that they know!
Your accountant or bookkeeper should be your collaborating partner helping you reach your goals.
If you don’t have someone on your team working alongside you, Patrick Accounting might be the partner you’ve been searching for.
Find out if we’re the right fit for your business: Who Is a Good Fit for Patrick Accounting?
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