Todd Nesnick
You need a healthy cash flow to keep your business running smoothly. However, bad financial habits, like mixing personal finances and company revenues, too much debt, poor bookkeeping practices, and unrealistic expectations can spell failure in your business.
Luckily, there are tech tools, like a business loan calculator and budgeting tools, that you can use to nail your small business loans costs and budget accordingly to secure and keep your company finances stable.
Three Common Financial Mistakes Entrepreneurs Make
Unrealistic expectations
It’s good to be optimistic, but most entrepreneurs get too theoretical with high expectations not anchored on data.
They even fail to integrate external factors that influence their business into their plan and budget.
Others overestimated revenues and underestimated costs, ending up with unrealistic revenue projections—such excitement results in big moves that go bust and cost the company a lot of money.
So keep emotion in check, start small, and make realistic plans and budgets that factor in all expenses and factors.
Using too much debt
From time to time, entrepreneurs need money to keep their businesses growing.
However, some business owners go overboard with debt, and they end up borrowing more than they can afford to pay.
In the end, monthly installments eclipse their monthly revenues, and they are forced to liquidate assets to pay back the loans.
You need to be prudent with debt and always use a loan calculator to make sure you only borrow what you can afford to pay.
Mixing personal finances and business revenues
This is a perennial challenge for sole-proprietorships. They use personal finances to bootstrap growth and then take out enterprise revenues for personal use.
Failure to budget business/personal expenses is the big issue that leads to this. They spend many in either category, which results in stressful unexpected expenses.
Treat your business as a separate entity and stay disciplined to avoid this trap. Budgeting helps you project and track monthly expenses to establish where money is spent each month and avoid nasty surprises.
Keep two separate budgets to track personal finances and company revenues separately.
Five tips to have better organization in your company’s finances
Budget accordingly
A budget is key to avoid overspending in unplanned categories. Use a budget to project revenues and expenses, allocate business revenues, and track expenses.
That will help keep company finances organized and slash wastage from impulse spending.
Monitor your books closely
Stay hands-on with the accounting department and create time to review cash flow statements, bank reconciliations, suppliers’ data, outstanding invoices, and more with your bookkeeper.
You’ll not only become more aware of your enterprise revenues but also spot issues of embezzlement and mismanagement before they spiral out of control.
Vigilant monitoring also helps you nail weak internal controls/loopholes and integrate technological tools to fix them and prevent employee fraud that can pose financial risks in your business.
Use business loans prudently
Businesses use debt to grow and expand their operations. How you use business loans is what makes the difference.
First, you need to make sure you borrow for a specific enterprise project or expenditure and wire the money directly to fulfill that purpose.
Maintain a good to excellent business credit profile so that you can easily and quickly get approved for business loans at favorable terms and reduce interest costs.
Again, measure ROI with each expenditure to ensure that what you borrow helps your industry grow.
Plus, don’t borrow blindly. Before going into debt, use a business loan calculator to compute your loan’s costs, including total interest, monthly installments, repayment terms, and fees.
Invest in growth
To secure the future of your company finances, you need to make sure that you are constantly investing in growth.
Instead of letting excess cash flow sit idle in the bank or splurging in unbudgeted expenses, keep looking for growth opportunities and invest in company assets that add value to your business.
You should also maintain reasonable to excellent credit to obtain loans at favorable terms and reduce interest costs by talking about business growth. Thus, future loan-funded company projects will have decent ROI in your business.
Don’t just take money, pay yourself instead
Being the boss doesn’t mean you can spend company finances the way you wish. Doing so mixes your personal and business finances, and you may cause severe cash flow crises in your industry.
Situations may also arise where you pay every other business expense and neglect or underpay yourself. Treat your company as a separate entity and pay yourself a monthly salary to avoid that catch.
Again, budget properly to separate and keep your business revenue and personal finances in good shape.
Tools to help you better organize company finances
Budgeting tools
Budgeting tools help you create budgets easily, allocate revenues, track expenses, and avoid overspending.
Float, Scoro, Centage, Planguru, and Prophix are some of the top cloud-based budgeting tools to help you nail your business budgeting.
Accounting software and apps
Account software systems help you reduce bookkeeping costs and avoid the hassles of managing your business finances.
Top ones like FreshBooks, QuickBooks, Xero, and Wave integrate features to help you track income & expense, create and send invoices, track vendors & clients, process payroll, file taxes, generate financial reports, and more.
Small business loan calculator
Finally, you’ll need to inject funds into your business to finance growth/expansion projects, cover significant one-time expenses, and more.
These calculators help you establish your loan costs upfront and determine affordable options.
You can calculate the total interest you’ll pay over the loan term, monthly installments, fees, and loan terms and make an informed decision.
Visit a link in the intro to find out how a small business loan calculator works.