7 deadly money sins that seriously harm your business

Starting a business is an exciting adventure, but it also comes with a lot of financial responsibilities. As an entrepreneur, you need to be aware of common money sins that can lead to financial trouble, and even business failure, writes money management expert, Jacqui Clarke.

Forbes suggest that 90 per cent of new businesses fail within the first five years, and a significant factor in this is poor money management.

Let’s explore the seven key money sins you need to avoid:

1. Overspending

Let’s face it – it’s easy to get carried away with spending when you’re passionate about your business. You want to invest in all the latest tools, technologies and marketing strategies to help your business grow. However, overspending can quickly lead to a cash flow crisis, which can put your business in jeopardy. Worse, this can put assets at risk that you may have provided to the bank as security.

To avoid overspending, it’s important to create a budget and stick to it. Keep track of all your expenses, and make sure they align with your business goals. You can also consider cost-saving tools to streamline your business operations and cut down on unnecessary expenses and reduce administration. For example, accounting, project management or cloud storage software.

2. Ignoring cash flow

Cash flow is the lifeblood of your business and also recognised as one of the biggest challenges facing business owners. The old saying “cash is king” could never be truer. Ignoring it can lead to a cash crunch, which can affect your ability to pay bills, make payroll, and grow your business.

To avoid cash flow issues, keeping track of your cash flow regularly and forecasting your future cash needs is critical. Set up payment reminders and follow up on overdue invoices promptly. You can also consider using financing options like a line of credit to bridge gaps in your cash flow if you have a mismatch between the time people pay you and the time you pay others.

3. Mixing personal and business money

Combining personal and business finances can make it difficult to track your business’ financial performance and can lead to a multitude of issues, most commonly tax issues.

To avoid this mistake, open a separate bank account for your business and use it exclusively for business expenses. This will make it easier to track your business’ expenses and keep your personal finances separate.

WATCH: Cash flow management tips on KBB TV:

4. Failing to save for taxes

Taxes are an unavoidable part of running a business. Failing to save for them can lead to a significant financial hit at the end of the year, and the next most common reason for business failure.

To save for taxes, estimate your tax liability and set aside a portion of your income each month from the get-go. You can also work with an accountant to ensure you’re taking advantage of all available tax deductions.

5. Taking on too much debt

Taking on too much debt can be a slippery slope that leads to high interest payments, which can eat into your profits and hinder your business’ growth.

To avoid taking on too much debt, create a plan that includes debt repayment – however small that might be to start. Prioritise high-interest debt and consider consolidating debt to reduce interest rates.

Building a relationship with your bank may also help when you want to explore alternative financing options.

6. Not investing in your business

Investing in your business is essential for growth, but failing to invest strategically can lead to financial trouble.

To invest in your business strategically, consider the potential ROI of each potential investment, the timeframe for the investment to pay off, and the impact on your business’ cash flow.

7. Failing to plan for the future

You need a plan. The absence of a plan can lead to financial instability and hinder your business’ growth.

To create a plan, assess your business’ financial performance, set long-term goals, and create a roadmap for achieving those goals. Continually monitor your progress and adjust your plan as needed to ensure you stay on track.

Managing money as an entrepreneur requires discipline, planning and a strategic approach. By recognising these seven money sins and taking steps to avoid them, you can set your business up for long-term financial success.

This article was first published on Kochie’s Business Builders, read the original here.

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