Money Blunders: How Southern Virginia Small Business Owners Can Sidestep Common Financial Mistakes
Being a small business owner is no easy feat. Not only do you have to worry about the day-to-day operations of your business, but you also have to keep an eye on the bottom line. And if you're not careful, it's easy to make some costly financial mistakes that can put your business in jeopardy.
To help you avoid making these mistakes, the Southern Virginia Regional Chamber of Commerce has compiled this list of financial mistakes small business owners commonly make and how to avoid them. Read on and learn from the mistakes of others so you can keep your business in the black.
Not Designating Your Company as an LLC
One of the first decisions you'll have to make when starting a small business is what legal structure to choose for your company. And while there are several different options to choose from, many small business owners mistakenly believe that they should forgo choosing an LLC designation because it's too expensive or complicated. However, this couldn't be further from the truth.
An LLC, or limited liability company, is a type of legal structure that provides its owners with personal liability protection from debts and lawsuits arising from the business. This means that if your LLC is ever sued or incurs debt, your personal assets — such as your home, savings account, and car — will be protected from seizure. Without this protection, you could be putting your personal assets at risk. So if you're not already operating as an LLC, we strongly recommend that you consider doing so. It may cost a bit more up front, but it could save you a lot of money and headaches down the road. Here is a great resource on how to start an LLC in Virginia.
Another common mistake small businesses make is inefficient invoicing. According to GoForma, this usually happens when businesses don't have a system in place for tracking invoices and payments. As a result, invoices get lost in the shuffle and payments fall through the cracks. This can lead to late fees and interest charges, which can add up quickly and put a strain on your cash flow.
To avoid this mistake, we recommend setting up a system for tracking invoices and payments as soon as possible. There are several software programs available that can help with this, or you can simply create a spreadsheet to track this information manually. Either way, having a system in place will help ensure that all invoices are paid on time and will save you a lot of money in late fees and interest charges down the road.
Another common mistake small businesses make is poor budgeting. This usually happens when businesses don't take the time to track their income and expenses carefully or create a realistic budget for their operational costs. As a result, they often find themselves overspending and running into cash flow problems down the road.
To avoid this mistake, we recommend taking the time to track your income and expenses carefully so you have a good understanding of where your money is going each month. Then, create a budget for your operational costs and stick to it as closely as possible. It may take some trial and error to get it right, but once you do, you'll be in much better shape financially.
Commingling Business and Personal Finances
One of the biggest financial mistakes small business owners can make is mixing their personal and business finances together. This usually happens when businesses don't set up separate bank accounts for their business operations early on. As a result, they often find themselves commingling funds and running into trouble down the road when they try to file their taxes or apply for loans.
To prevent this from happening, Money Under 30 recommends setting up separate bank accounts for your business operations as soon as possible. This will help you keep track of your finances more easily and will prevent any issues when it comes time to file your taxes or apply for loans. It's worth the extra effort up front to save yourself a lot of headaches later on.
Set Up to Be Financially Sound
Small business ownership comes with many challenges, one of which is managing finances. If you're not careful, it's easy to make some costly financial mistakes that can put your business in jeopardy, but following these tips will help you stay on track. It may take some time to take care of tasks like setting up a business bank account and researching the best business structure, but your effort will pay off in the long run. Take the time today to set yourself up for great financial success tomorrow.
Join the Southern Virginia Regional Chamber of Commerce to access our wealth of resources designed to help your small business flourish!