The Top 8 Money Mistakes Small Business Owners Make

  • By Jocelyn Black Hodes, DailyWorth’s Resident Financial Advisor
  • June 04, 2013


Mistake #5: Not tracking income and expenses. It is critical that you know where every dollar your business earns comes from and where every dollar goes. Not doing so is like driving a car are bound to crash quickly. Tracking will help you identify where to cut back and where to invest more. Many entrepreneurs use the accounting software Quickbooks, but at least use some kind of spreadsheet to track your cash flow closely.

Mistake #6: Not re-investing enough in your business. You have to spend money to make money, right? It’s challenging to see the value in reinvestment when income is lean and expenses are abundant. But that often is when you need to reinvest the most, whether it is in hired help or better marketing. Spending money on process efficiency and customer experience improvement is imperative for your long-term success, even if it means making other sacrifices in the meantime.

Mistake #7: Insufficient cash stash. Reinvesting in your business is key, but it’s also important to have a cushion -- even when times are good. That way you’re protected if you hit an unexpected rough patch and your income plummets. To avoid the risk of going into debt or sacrificing assets, aim to set aside at least six months to a year’s worth of operating expenses in a separate savings account -- ideally in addition to a personal emergency fund.

Mistake #8: Being too much of a risk-taker. Yes, you’re an entrepreneur. You were born to take risks. But that should not mean endangering your hard-earned profit and the business itself by choosing overly-aggressive investments. Once you are past the break-even point and have enough stashed in emergency savings, you should still be sensible with your surplus investment strategy. That means investing in a well-diversified portfolio of different kinds of investments that will offer solid growth opportunity and protection against significant losses.

Bottom line: Owning a business can be the hardest and most rewarding experience of your life. Many who try fail. But if you know what not to do and are careful with your business planning and execution, you are much more likely to be one of the success stories.

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