10 Mistakes That Cost Small Business Owners Money and How to Fix Them

At a Glance

Most money mistakes small business owners make aren't dramatic. They're the result of messy books, no budget, hires made too fast, taxes handled by gut feelings, and trying to do everything yourself. After 20 years of working with hundreds of business owners, we've seen the same 10 show up again and again. Here's the full list, what each one actually costs you, and the fix for each.

If you ever watched The Late Show with David Letterman, you probably remember him reading his Top 10 list. We've put together our own version: The 10 biggest mistakes small business owners make that cost them money, and how to avoid them.

Whether you’re losing money to bad habits, poor planning, or trying to do it all yourself, this list will help you spot the problem areas and start fixing them today.

Just imagine Letterman's voice as you read…

#10. You're Keeping Sloppy Records and Don't Actually Know Your Numbers

If you can’t find what you need when you need it, or if you can’t quickly and easily see where you are financially, how can you possibly know if you’re winning or not? We see this all the time in our first meetings with business owners. 

We call it living in the "land of kind of."

You kind of know if you're profitable. You kind of know what you'll owe in taxes. You kind of trust your numbers, but not enough to bet on them.

We've worked with hundreds of business owners over the past 20 years, and about 99% of them showed up with what we call "crappy books." Not because they're bad at business, but because even decent systems break down without regular attention.

The time you spend hunting for information that should be at your fingertips is time and money wasted. Get organized and build a way to see your financial position at a glance.

#9. You Don't Have a Plan or Budget

Every business needs a plan,  even if it’s a simple one-page document that says who you are, what you do, and where you want to go. For your money, that plan is called a budget. Neither has to be fancy, but 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!

Write down your business goals and map out the steps to get there. Then, create a budget to keep your finances on track. Even a simple one beats guessing.

#8. You Confuse Needs and Wants

We all know the difference, but sometimes we want the shiny thing so badly we convince ourselves we neeeeed it.

Don’t forget, the goal is profit. Not a cool new piece of equipment or the latest gizmo. (Collect enough profit now, and you can buy all the shiny gizmos you want later.)

In the meantime, stay focused on what your business actually needs. The new Mercedes-Benz Sprinter is a sweet delivery van that makes a statement, but can you get that dry cleaning to your customers just as well in an old used Ford Econoline? Probably.

#7. You're Holding on to Paid Subscriptions Too Long

The gym membership was a great idea (it really was), but when was the last time you went? What about the business magazines stacked on your desk? Are they helping, or just… there?

These little expenses add up and pull money away from things that matter more. Audit your subscriptions and cancel what you're not using today.

Industry research backs this up. A large share of software subscriptions in the average company go underused or completely unused. For a small business, that's easily hundreds or thousands of dollars a year going to tools nobody touches.

#6. You're Trying to Do It All Yourself

Every time a task lands on your desk, ask yourself what 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 is only going to hold you back.

Delegate. Outsource. Let go of the idea that everything has to run through you. If someone else can do a task, take the death grip off your wallet and pay them to do it. Whether it's using a bookkeeper, a delivery driver, or a virtual assistant, handing off lower-value work frees you to focus on the big picture.

You'll come out way ahead because those tasks steal your valuable time fast. Do the things only you can do, and get help with the rest.

# 5. You Hire Too Soon, Too Late, or Hold on Too Long

A bad hire is one of the most expensive mistakes on this list. Recruiting, training, lost productivity, and turnover stack up quickly, and that's before you count the drag on your team and your customers.

That $40,000 assistant you hired after one phone call as a favor to your mom (the one who shows up late, leaves early, and speaks to customers rudely)? That wasn’t a $40,000 hire. Employee research shows that replacing a single employee typically costs around one-third of their annual salary once you factor in recruiting, hiring, and training. Total turnover costs can climb much higher when you add lost productivity and damage to customer relationships. In other words, by the time you’re done cleaning up after that bad hire, you’re looking at a five-figure mistake.

Take your time. Hire good people. And don’t be afraid to help the wrong ones find a better opportunity.

# 4. You Don't Have a Safety Net

Call it retained earnings, an emergency fund, or a rainy-day account. Whatever the name, the idea's the same: When money comes in, set a percentage aside so there's something to catch you when the bottom falls out (or to fund that shiny gizmo from #8).

How much? A common target is three to six months of operating expenses in reserve. Most small businesses are nowhere close.

Need a system to make it automatic?

Profit First is a great framework for building that cushion on purpose, instead of hoping there's something left over.

#3. You make purchases because “the Bank Balance Looks OK”

If your method for deciding whether or not you can buy something is checking your bank account to see if today's number is positive, you’re doing it wrong.

Get your business on a budget (or stick to the one you have), and use past numbers to do some basic forecasting. Decide whether you actually have the money. Then, if everything checks out, give yourself the green light.

Because “Ready, Fire, Aim” is a terrible way to spend.

#2. You're Getting Sloppy on Taxes

You should never be surprised by what you owe or when you owe it.

A good accountant or tax pro keeps track of it all and works with you year-round to make sure you're paying the lowest amount legally possible. That way, the federal agencies with initials for names leave you alone (hopefully).

Skip your estimated quarterly payments, and the IRS charges a penalty calculated like interest on what you owe, at a rate the IRS resets each quarter. That adds up fast, and it's completely avoidable.

#1. You're Still Crunching Your Own Numbers

As your business grows, you need good professionals on your team to help you keep things running smoothly and stay compliant. Like #6, there comes a point where you're no longer the best person to manage your own business finances.

The signs show up slowly. Your books start telling you what happened, but they stop telling you what to do next. A few miscategorized transactions in January quietly compound into a real distortion by December. Tax season turns into a guessing game instead of a plan.

That's the tipping point.

A good accountant or bookkeeper keeps you organized, on track, and in the black. And they give you the insight to make better decisions, so your business can grow (and you can keep handing them bigger numbers to work with).

The Bonus Mistake: Blindly Handing Your Finances Over to Someone Else

One last mistake to be aware of is taking your hands off the wheel and blindly turning your finances over to someone else, assuming they've got your back. No matter what, 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 it, you just can't take your hands off the wheel entirely.

A good accounting partner wants you in the loop and wants you making decisions you actually understand. If you don't understand something, ask. And keep them informed about anything that could hit your bottom line. Did you have a kid this year? Sell your home? Is the Econoline finally dead, so you're using your personal vehicle for deliveries now? Don't assume they know.

Your accountant should be a partner who helps you reach your goals.

Quick View of the 10 Most Common Small Business Money Mistakes and How to Fix Them

Here's the whole list at a glance, ranked by how they tend to drain a business and how fast you can fix each one.

Frequently Asked Questions (FAQs)

What's the most expensive mistake small business owners make? It depends on the business, but hiring the wrong person is one of the costliest mistakes once you add up recruiting, training, lost productivity, and turnover. Right behind it: Trying to do everything yourself (#6 and #1 on this list), which slowly drains your time and caps your growth.

How much does a bad hire really cost a small business? More than the salary. For a $40,000 employee, the true cost climbs well into five figures once you factor in recruiting, training, lost productivity, and turnover, and it's higher still when you account for the hit to your team and customers.

When should a small business owner hire an accountant? As early as it makes sense, but especially when your books start telling you what happened without telling you what to do next, or when your tax situation outgrows a simple return. At that point, what you "save" doing it yourself is usually less than what a good accountant saves you.

How much does a small business accountant cost? It varies based on your size, industry, and how clean your books are. The better question is what it costs to operate without one: missed deductions, surprise penalties, pricing mistakes, and hours lost to confusion. You can get a pretty good estimate with our pricing calculator, but we always review your financials before quoting a price because the actual number depends on your specific situation.

How do I know if my business finances are in good shape? If you can answer three questions without looking anything up: What's my monthly revenue? What's my profit margin? Am I current on taxes? If you can answer all of these off the top of your head with confidence, you're in decent shape. If you can't, start with #10 on this list.

Getting Help Before These Business Mistakes Add Up

If you read this list and saw your business in a few of these, you're in good company. These mistakes are common precisely because they're easy to miss when you're the one running everything.

Every one of them is fixable, though, and most get easier with the right partner by your side, watching your numbers.

That's what we do at Patrick Accounting. We're a Memphis-based accounting, bookkeeping, tax, and advisory firm that works with small and medium-sized business owners nationwide, including restaurants, home care and hospice agencies, salons and spas, skilled trades, and professional service businesses. Our whole job is simplifying your financial and people complexities so you can run a better business.

If you don't have someone on your team working alongside you, we might be the partner you've been looking for.

Find out if we’re the right fit for your business:
Who Is a Good Fit for Patrick Accounting?