Statistics show that the most common mistakes that small business owners make are often in the area of money management. The U.S. Small Business Administration reports that errors in the handling of finances cause numerous companies to fail. Here are some of the most serious mistakes that business owners make and how you can avoid them.

Failing to Separate Personal and Business Finances

Many small business owners see no harm in mixing their personal and business finances. They believe that since their profits are small or they are not yet incorporated that there is no need to bother. However, a dedicated business account enables you to much more easily track income and expenses related to your company. At tax time, you’ll be thankful that your company ledger is simple and straightforward.

Starting Up Without a Business Plan

A business plan provides guidelines for your company to outline your organization, delineate your goals, assess progress, and impress investors. You may not be actively seeking out investors when you get started, but having your business plan ready enables you to swiftly proceed in the event that you need financing in the future.

Neglecting Tax Responsibilities

Small business owners are fully responsible for their company’s tax liability. It’s easy to neglect this aspect of finances when you’re first starting up, but if you do, you’re in for a shock when payments come due. The best solution is to make quarterly estimated tax payments based upon your income.

Poor Management of Cash Flow

Some small business owners take pride in bootstrapping and the avoidance of debt. However, if your company’s debt-free status comes at the expense of its cash flow, you may be doomed to ultimate failure. Strong and steady cash flow is integral to business prosperity, and sometimes you have to take on debt in the form of a loan or line of credit to make this possible.

Not Compiling Emergency Reserves

Every small business owner should compile financial reserves to have on hand for emergencies. Pay into it regularly as a standard monthly expense. Experts calculate that you should aim for about six months of operating expenses.

For more advice on avoiding financial mistakes in small business, contact Aspen Commercial Lending.