Many successful small businesses are started and run by people with unconventional backgrounds. Not having gone to business school or worked for a large company should not be taken as a sign that a business owner is doomed to fail.
A lack of formal education or relevant experience, though, can make an entrepreneur more likely to make certain mistakes. This is particularly true of the kinds of financial troubles that so often force small businesses to close their doors for good.
Being aware of the sorts of financial mistakes that small-business owners most often make will make it easier to avoid them. A look at the five most consistently troublesome financial issues for entrepreneurs follows.
1. Failing to Get Help With Accounting
Large enterprises always have accounting departments where dozens or even hundreds of specialists work. Many small businesses lack the resources to employ even a single full-time accountant, but this is not to say that doing without this type of expertise is ever the best option.
Getting help with Business Accounting will always be an effective way to safeguard a business against a range of possible financial problems. Skilled accountants can highlight troubles on the horizon long before they actually becoming damaging and difficult to deal with.
Unfortunately, some small-business owners see getting assistance with accounting as something of a luxury that is best put off until later. Nothing could be further from the truth, in most cases.
2. Not Taking Out Insurance
Some sorts of businesses are required by federal, state, or local laws to maintain certain types of insurance coverage. Even in such cases, though, owners often overlook equally important types of policies.
There are a number of kinds of insurance that can be of great use and value to most businesses. Just as no responsible homeowner would go without property coverage, so should business owners always maintain appropriate insurance themselves.
3. Amassing Too Much High-Interest Debt
Most small companies have very limited resources, and that can make borrowing seem like an excellent idea. Loans backed by the Small Business Administration or offered by local bankers have, in fact, helped millions of small businesses grow.
Expediency sometimes leads business owners to borrow at terms that make less sense, however. It might seem prudent to fund an important purchase with a credit card, but the interest could add up very quickly.
Other businesses get tripped up by merchant cash advance agreements that limit their daily revenues for a long time to come. Just as with personal finance, it will always be best to weigh the cost of a loan against the expected benefits.
4. Not Staying on Top of Taxes
The Internal Revenue Service has little patience with business owners who fail to keep up with their tax-related obligations. State-level tax authorities are rarely any more understanding or lenient. While paying taxes is never pleasant, that should not be seen as a reason to neglect it.
5. Not Budgeting or Planning for the Future
Some small companies seem to run themselves, but careful budgeting and planning will always improve even their results. Business owners who get in the habit of staying disciplined and being strategic tend to overcome the challenges they inevitably face most effectively.
All the Financial Mistakes Business Owners Most Often Make Can be Avoided
These five financial issues regularly trip up small business owners, sometimes to disastrous effect. Even simply being aware of the prevalence of such problems can help a thoughtful business owner avoid them.