Angleton SBOs: Prioritize Your Finances by Avoiding These Disastrous Money Mistakes

Being a small business owner is hard enough without having to worry about making costly financial mistakes. Unfortunately, many business owners don't realize they're making these mistakes until it's too late. In this article, the Greater Angleton Chamber of Commerce covers 10 of the most common financial mistakes small business owners make and how you can avoid them.

Bad Budgeting

One of the most common financial mistakes small business owners make is not having a budget. Clutch reports that according to a recent survey, more than half of small businesses don't have a formal budget in place. Without a budget, it's difficult to track your expenses and make informed financial decisions. Create a budget for your business and stick to it as much as possible.

Poor Invoicing Practices

Another common mistake small business owners make is inefficient invoicing. This can happen for a number of reasons, such as not sending invoices out on time or not using automated invoicing software. As a result, businesses end up losing money that they're owed. Make sure you send invoices out as soon as the work is completed and use invoicing software to automate the process.

Lax Inventory Management

Another mistake that businesses make is poor inventory management. This can lead to overstocking items that aren't selling or not having enough of a popular item in stock. Both of these scenarios can cost your business money. To avoid this mistake, keep close track of your inventory levels and only order what you need.

Mixing Personal and Business Finances

Mixing business and personal finances is another mistake that small business owners often make. Money Under 30 explains that this can lead to problems if you ever need to file for bankruptcy or if there's an audit of your business's finances. It's important to open a separate bank account for your business and only use it for business expenses.

Having a High Amount of Debt

Small businesses often have a lot of debt because they need to take out loans to start or grow. While debt can be necessary, having too much can be disastrous for your business. Try to keep your debt-to-equity ratio below 2:1. This means that for every $2 you owe, you should have $1 in equity (assets minus liabilities).

Choosing the Wrong Business Designation

Many small business owners don't realize that there are different types of legal structures for businesses, such as sole proprietorships, partnerships, LLCs, and corporations. Each type has its own set of rules and regulations, so it's important to choose the right one for your business. One common mistake is not choosing an LLC designation, which can provide personal liability protection for the owners of the company and offer tax benefits each year. An LLC in Texas can quickly and affordably be set up online with the help of a formation service, which is much less expensive than the cost of working with an attorney.

Hiring the Wrong Staff

Hiring the wrong people is another mistake that small businesses often make. This can happen for a number of reasons, such as hiring someone without doing a background check or not taking the time to properly train employees on company policies and procedures. Hiring the wrong person can cost your company time and money, so it's important to do it right the first time around.

Not Purchasing Insurance

Many small businesses don't have insurance because they think it's too expensive or they're not required by law to have it. However, not having insurance can be a huge risk. If something goes wrong, such as one of your employees getting injured on the job or your products damaging someone's property, you could be held liable. This could cost your company thousands of dollars, so it's important to have adequate insurance coverage.

Not Saving for Taxes

Another mistake that businesses make is not saving for taxes. This can lead to problems come tax time, such as being unable to pay your taxes in full or owing interest and penalties on late payments. Be sure to set aside money each month so you have enough saved when tax season rolls around.

Not Keeping Track of Receipts and Expenses

Finally, one last mistake that businesses make is not keeping track of receipts and expenses. This can lead to problems come tax time or if you ever need to produce documentation for an audit. As a best practice, keep all of your receipts organized in one place and track all of your expenses using accounting software.

Avoid Mistakes and Find Success

Many entrepreneurs consider themselves big-picture people, and the details of the numbers can get left behind in the adventure of starting a business. But if you don't keep an eye on your finances, you could run into trouble in the near or distant future that puts your company at risk. Avoiding financial mistakes, like choosing the wrong business structure or keeping poor records of your invoices and inventory, will help you find success as a small business owner.

The Greater Angleton Chamber of Commerce is committed to helping our local entrepreneurs find success. Join us today to take advantage of our wealth of resources!