Entrepreneurs by nature are continuously occupied with running their business and wearing multiple hats throughout the day just to keep things running smoothly. Unfortunately, that leads entrepreneurs into making a number of common mistakes.
Mistakes that damage the long-term success and potential of their business.
Listen to the latest episode of the podcast to learn about the four most common financial mistakes entrepreneurs make that put the future of their business at risk, and how you can avoid them.
- Many entrepreneurs find themselves underserved when it comes to financial planning and often rely too heavily on their CPA for financial advice.
- One common mistake entrepreneurs make is assuming that as long as they meet payroll, stay current on taxes and receive payments from customers, their business is financially healthy.
- The problem is CPAs primarily focus on looking backwards and reviewing the previous year or quarter to meet tax filing deadlines, instead of looking forward and making strategic plans for the following year.
- Proper financial planning can help your business reduce its tax liability and increase its profitability.
- Another common mistake is entrepreneurs take the profit of their business as income, which may not be the most efficient method of distribution. Proper planning helps find the balance between income and profit.
- Financial planning can also help you determine whether your business structure is still appropriate for where you are or if it needs to evolve.
- Financial planning also helps mitigate risk, and there are three major risks that every business faces: death, disability, and divorce. Any of these risks becoming a reality can seriously derail a business and its long-term potential.
- Entrepreneurs tend to visualize positive outcomes rather than seriously considering what could go wrong and how they should address those potential problems. Having a financial plan can include agreements and other triggering events that can help facilitate a smooth outcome when facing such events.
- Another common mistake made by business owners is treating the business exit as merely a transaction rather than a transition. Exiting the business involves more than just the sale itself; it requires planning for life after the exit.
- Owners frequently overvalue their business leading to unrealistic expectations regarding the outcome of the sale. Many business owners also underestimate the time and effort required to prepare for a successful exit.
- Preparation for a sale can take years of planning, if done right, and should be incorporated into an overall financial planning process.
- Another common mistake is succumbing to the pressure of spending money to avoid tax liabilities. While tax planning is essential, it should not be the sole, driving factor behind financial decisions.
- FOMO (fear of missing out) can also lead to poor cash flow management, where entrepreneurs may be tempted to seize every opportunity that comes their way without considering its compatibility with their business vision.
- By having a well defined cash flow plan, entrepreneurs can allocate resources efficiently, reduce financial stress, and build wealth inside and outside of their business while helping to maintain stability during both prosperous and challenging times.
- A cash flow strategy is an integral part of an overall financial plan and acts as a roadmap, guiding financial decisions and helping you make the most of the cash flow.
Mentioned in this episode:
Common Sense Financial Podcast on YouTube
Common Sense Financial Podcast on Spotify
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