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8 Financial Mistakes Every Small Business Needs to Avoid

by virtualemployee

When you plan to start a business, you need to take into account a gamut of important decisions. The stress of choosing the best could lead you to make a wrong choice, which could in turn land you in a risky spot and causes you losses. Finance, being an integral aspect of any kind of business activity, needs to be managed wisely if you want your business to prosper and expand to match your vision. There has been a steady increase in the number of small enterprises in recent years, but not all of them may turn out to be financially stable. To make sure that every penny has been spent wisely, you must know and avoid the financial mistakes in small businesses.

Read on to know more about the common financial mistakes in small businesses that can help you avoid bankruptcy as the owner.

Rehashing Previous Year’s Budget Plan

When you sit down to plan your budget just before the start of the new fiscal, do not let the analysis of the previous year’s budget cloud your mind. You may of course take references but avoid following it as it is. It may appear to you as a time-saving tactic but such a practice cannot be advantageous for your business in the long run. Do not forget about the changes that influence the economy, people, and environment during a year. Your fresh budget in the current year must take into account all such important aspects, suiting the circumstances of your business. Reviewing and modifying last year’s plan to suit the current fiscal is the best way to come up with a pragmatic budget plan.

Creating One-Track Plans

When you are constructing a budget for your business, be aware of the essential drivers that could affect the outcomes. It’s advisable to keep at least two to three strategies in hand so that you are ready to act according to the various financial courses that your business would follow. You must also keep a note of the changes in prices, profit margins, sales volume, etc. Once you know your numbers, you can create scenarios accordingly. Make a list of the probable variables and the consequences they can lead to so that you are ready to deal with any kind of difficulty, fast and easily.

High Cost-Cutting Practices

Exercise caution in being too keen to cut costs and thereby risking the profitability of your business in the long run. Be aware of the costs that can fast-track the success of your business. Do not shy away to invest in marketing, improved customer services, recruiting top order executives, enhancing digital presence, etc., so that the growth of your business can be augmented as desired.

Fast-Paced Expansion

As an entrepreneur, you are bound to try all the tricks to stay ahead in the market competition. Usually, small businesses are always eager to move forward at a frightening pace but it’s important to understand that it is not always necessary to scale up investments in the form of new recruitments, system overhauls, and acquisition of assets on the pretext of the slightest success. Do not forget that as you expand, your overheads would increase and your cash flow would reduce. Troubled cash flow can lead to long-term debt, which may not sit easily on you. Hence, at times, it is better not to expand than to grow at an unreasonable pace.

Recourse to Personal Debts

If you are a start-up, your first year is going to be tough since you are bound to make errors due to a lack of knowledge about variables and this can cost you steeply. What’s worse? Rectification of these errors would cost you even more money. You would also require money for further business expansion so taking on personal debt for the same could prove to be disastrous. That apart, paying high interest on the loan could dry up your savings entirely. Hence, personal debt is a strict no-no since with personal debt in tow, it would be extremely difficult for you to cover your emergency business requirements.

Losing Track of Your Expenditures

At the start of your venture, it’s likely that your revenue would be less than your expenses. You can cover the start-up cost with the help of a business loan. However, keep a tab on wasting your money since your loans can increase the burden of your debt unnecessarily. Review your financial statements on a regular basis to check your expenses and monitor the growth of your company. Ensure that your bills have been paid on time and structure a budget that cuts down overspending. Outsource finance and accounting services in case you find it difficult to keep track of your expenses and income.

Recruiting More Than Needed

It could be harmful to your business if you are on a recruiting spree without securing a regular stream of revenue first. For emerging businesses, it’s critical to have a competent and manageable team contributing to the common aim of the company. You must also be ready to terminate employees who fail to perform within short notice. Alternately, you can take help of different kinds of financial services available on a full-time or freelance basis.

Poor Marketing

It’s important that you acquire new clients from time to time for your business growth. While small businesses can do with serving the same client for a long period of time, businesses that aim for growth, revenue generation, and expansion, require new clients. Hence, innovative marketing methods and strategies need to be developed to retain old customers and also attract new ones while standing out in the competition. You can alternately outsource finance and accounting services along with marketing services to third parties who can help you devise strategies for the growth of your business.


Committing financial mistakes in small businesses is an inevitable part of learning and growing while running an enterprise. However, it’s best to remember these mistakes and ensure that they are never repeated. Remember the significance of budget planning early on to keep your venture on track and realize your vision with ease.


Businesses, however big or small, cannot fail because of a single error. The failure is mostly because of a string of reasons committed over a period of time. Instead of being afraid of failure, modulate the strategy of your company to fit the requirements as necessary. Be open to experimenting with ideas and processes that can bring about improvements, and suit the preferences of your customers. And DO NOT hesitate to outsource financial services if need be.

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