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5 financial mistakes your small business should avoid

Running a small business is both exciting and challenging. Learn the financial mistakes you should avoid.

Business owners are responsible for ensuring their ventures thrive financially.

In Canada around 30% of small businesses fail within 5 years of start up, growing to 50% within 10 years, and 70% within 18 years.

While many factors contribute to small business failure, cash flow and financial management problems are at the root of most closures. A lot can go wrong if you aren’t paying attention to things like budgeting and bookkeeping. No matter how old your business is, avoid the common pitfalls listed below to safeguard your business’s financial health. 

Here are five financial mistakes to avoid if you're a business owner:

        

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Mistake #1: Mixing personal and business finances

Many entrepreneurs initially overlook the importance of maintaining separate personal and business accounts. While using a personal account might seem convenient, it can confuse and complicate financial tracking. Keeping distinct accounts ensures accurate record-keeping and simplifies budget management.

Learn more: Separate business & personal finances
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Mistake #2: Not tracking your expenses

Tracking expenses is vital, especially during the early stages of business growth. Without proper monitoring, it's easy to overspend and accumulate unnecessary debt. Maintaining a clear record of expenses helps control costs, prevent financial strain, and avoid mounting debt obligations.

Learn more: Keeping business financial records
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Mistake #3: Neglecting your business credit

Business credit plays a significant role in a company's financial well-being. Neglecting to nurture and maintain good business credit can hinder growth opportunities and limit access to financing. 

Once you understand where your current standing is, take the following actions to maintain and improve your business credit. Start by:

  • Paying off your business debt and credit card debt;
  • Paying your business's regular monthly bills and other expenses;
  • Checking your credit report regularly for changes or unauthorized activities;
  • Keeping your credit utilization to a minimum.
Learn more: How a financial planner can help your small business

        

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Mistake #4: Forgoing a business budget

Establishing a comprehensive budget is fundamental for effective financial management. Without a budget, businesses risk overspending and jeopardizing profitability. Businesses can maintain financial stability and make informed decisions by setting financial boundaries and forecasting future expenses.

Learn more: Build the best budget
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Mistake #5. Ignoring tax responsibilities

Failing to address tax obligations can have severe repercussions for small businesses. Delayed or inaccurate tax filings can result in penalties and financial strain. It's essential to stay informed about tax requirements, meet filing deadlines, and allocate funds for tax liabilities to avoid last-minute scrambling and potential fines.

Learn more: Prep your business for tax season

As a small business owner, it's essential to manage your business finances as effectively as possible.

Small business financial management can be a complex process, but it is key to your business's long-term success. Learning from these insights and implementing sound financial practices will empower small business owners to navigate challenges and achieve sustained success.

For more information

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