Finances of any kind are arguably the most crucial aspect of any business. However, the demands of day-to-day company stewardship may reduce your available time for close financial scrutiny. 

A few minor missteps, if not carefully managed, may end up being the root of much bigger problems down the line. This guest post discusses seven common financial pitfalls that business owners must avoid.

1. Not Keeping Track of Spending

It’s easy for certain daily expenses to go unnoticed. Entrepreneurs might not think too much about an inexpensive work lunch or last-minute office supplies, but these little costs may add up over time and affect the finances.

Careful bookkeeping helps gain visibility into spending patterns so adjustments can be made before money is wasted on unnecessary expenditures.

2. Going It Alone Without Experts

It can be tempting for business owners to handle everything to save money. But finances require specialized skills. Expert financial advice is vital for business owners in busy cities such as New York, which has some of the most competitive terrains. 

For example, partnering with a fractional CFO New York may provide high-level financial expertise as needed, allowing businesses to tap into professional expertise without the expense of a full-time hire.

3. Not Understanding Tax Laws and Deductions 

Small company owners frequently battle with taxes. They may not fully understand complex tax codes and how to minimize their tax burden through legitimate deductions. This may put them at risk of owing more than expected or missing out on savings opportunities. 

4. Not Investing in Human Capital

Not allocating resources to develop employees’ skills may limit a company’s potential. People are a company’s most important resource. Not bringing on qualified team members or keeping underperforming staff for too long slows progress and negatively impacts the workplace environment. 

5. Not Reinvesting

Failing to reinvest profits back into the business may limit growth opportunities. While taking some earnings is reasonable, withdrawing too much removes capital you could use to improve operations, expand into new areas, or upgrade equipment. Keeping business and personal finances somewhat separate maintains this critical distinction.

6. Poor Debt Management

Taking on too much debt without a solid repayment plan may seriously jeopardize a business’s finances. Some companies end up with debts exceeding their assets due to poor debt management, whether from bank loans meant for business use or credit cards marketed to enterprises. 

7. Undercapitalization

Many businesses fail early due to undercapitalization or not having enough initial funding. Startup owners underestimate the costs to get their ideas off the ground. They assume only a certain amount is needed, but expenses are higher than planned. This makes it take longer to become profitable. With too little money to start, the business runs out of funds before seeing a return and cannot last. 

8. Only Focusing On Fundraising

People think an investor who will give them a lot of funding will solve all their financial problems. Fundraising does have its place when done judiciously to fuel growth. However, the most important thing is to focus first on building real value and a strong company foundation through excellent products, services, and operations. With a strong foundation like that, the company will succeed on its own merits over time and attract the business and funding it deserves.

Endnote

In summary, keeping close track of expenses, obtaining expert financial guidance, understanding tax obligations, investing in people, reinvesting profits strategically, managing debt responsibly, and avoiding undercapitalization are all keys to building a business with financial sustainability.

Disclaimer: This content is for informational purposes only and is not intended as financial advice, nor does it replace professional financial advice, investment advice, or any other type of advice. You should seek the advice of a qualified financial advisor or other professional before making any financial decisions.

Published by Drake M.