Sloppy Financial Management Is Like Death by 1,000 Paper Cuts for a Small Business

I post tons of articles that I find around the web and can help you all move your businesses forward. Oftentimes, people write to me asking me to elaborate on pieces of those articles so I started a series to do just that. I recently posted an article from Entrepreneur about common financial sins entrepreneurs make. I’m going to roll a number of those sins up into one for this post here, and that’s general sloppiness when it comes to managing your business’ finances.

Whenever we talk about financial management it seems a bit silly because, for the most part, we all know what we should be doing. Every business owner is aware that the finances really are the business itself and that making a mess of the money means making a mess of the whole company. In practice, however, we all tend to get so busy with other things that seem more pressing that we can very easily let our financial management practices slide. I’ve done it, you’ve probably done it, almost everyone does it from time to time, but it’s an incredibly destructive habit that can sneak up on you and kill your business.

We’ve all heard the phrase “death by a thousand paper cuts” and sloppy financial management is the perfect example of this happening. In general, no single financial mistake or bit of financial management laziness is going to sink your business. However, if you consistently make little mistakes and frequently let things slip buy, all of those little “paper cuts” build on one another and eventually you’ve got a financial problem too big to solve and your business crumbles.

Clearly, none of us want that, so let’s remind ourselves of the top 4 sloppy financial management practices that entrepreneurs fall victim to.

First up is not keeping up to date records. Nobody likes the drudgery of tracking receipts, balancing the books, and keeping up on accounts payable and receivable, but these things are  the foundation of your business. It’s important to set a system in place that basically doesn’t allow you to not keep your records up to date. Use services that automatically update and apps that track your receipts for you. Do whatever you need to do to make sure you’re staying on top of this. One of the most common – and disheartening – reasons that small businesses fail is cash flow problems and you can nip any cash flow problems in the bud by staying up to date with your record keeping.

The second major bit of troublesome financial management laziness is not budgeting or forecasting. I get that it’s tempting to just figure stuff out as you go along and you probably have the mindset that if you just only buy things that you really need, you don’t need to bother with budgets. That’s a terrible way to look at building your business because it keeps you focused on the short term instead of creating a long-term strategy that will keep your business successful for years to come.

Thirdly, lots of brand new entrepreneurs don’t use the services of an accountant or bookkeeper because they’re trying to save their limited money upfront. I didn’t use an accountant when I started out. If you don’t know what you’re doing, however, you simply have to invest in someone who does. You’re shooting yourself in the foot if you try to take on a task that is so integral to the success of your business but that you don’t enjoy and don’t have experience with. A good accountant will save you major headaches in the future and will often save you enough on your tax bill to nearly pay for themselves.

Lastly, and this is a big one, is the co-mingling of funds. I’ve talked about this a few times before in a few different New Venture Mentor videos but it’s an issue that I see over and over and over again. Money is tight at the beginning of building a new business and things are generally totally unorganized. Sometimes you run to the store and forget to bring the right debit card and sometimes you need to cover a bill for just a couple of days and can put the money right back. It doesn’t matter what the excuse you’ve made up for yourself is. You cannot co-mingle your personal funds with your business’ funds. You need to have separate bank accounts, separate debit cards, separate credit cards, separate everything. Not only does co-mingling your personal money and your business’ money make a mess of things for you in terms of accurately tracking what’s going on, it creates a lack of division between you as a person and your business as a separate entity that will come back to bite you if your company is ever sued or when you’re trying to do your taxes if your company isn’t a pass through entity. If you’re currently mixing funds, resolve today to stop immediately. Take a look at the accounts, zero everything out to where it should be, and NEVER mix the two again.

These financial boo boos may seem minor, but if you add multiple of them up over a period of time, you’re creating major trouble for your business that will give you migraines in the future and could cost you your business altogether. Responsible financial management is the only way to keep your company healthy, so stop committing these sins today.

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