While you’re in the process of taking stock of where you started the past year and where you’ll be starting the coming year, you’ll undoubtedly want to pay some extra attention to financial decisions you made in 2012, as well as the ongoing financial practices you take with you into 2013.
To help frame your thinking, NFIB, the National Federation of Business, has published common financial errors small businesses make. Even though consulting with an experienced, small business focused accountant or attorney can help you avoid most common errors, NFIB stays that there are still widespread financial mistakes that are frequently overlooked, even by professionals.
Taking on and keeping the ‘wrong kind’ of debt.
NFIB points out that while most growing businesses need debt of some kind to finance growth, the ‘wrong kind’ of debt can include things like credit card debt or certain types of personal loans. Any debt that is unnecessary also falls into this category. Experts suggest conducting regular reviews of your debt, try to pay it off and keep your eyes open for alternatives.
Not having sufficient cash reserves.
This is a common mistake across all kinds of businesses. The goal should always be to accumulate cash reserves that will cover your expenses, including bills and salaries, during periods of cash-flow fluctuations.
Not having ‘key person’ life insurance on principals and key employees.
This provides critical financial coverage while you ‘regroup’ and look for a replacement, in case your business should lose a key person—someone who could make the difference between the success and failure of the business.
Being underinsured for potential risks.
We all know about insuring property, but what about insurance for potential liabilities such as lawsuits? NFIB suggests working with your insurance agent to make sure you’re covered for all kinds of curve balls you could encounter in your industry sector.
Not having a comprehensive business plan for new products or services.
Any type of new offering warrants more than vague financial predictions or guesses. Make sure to make the effort to base projections on sound information—numbers and facts. And, try to stay on the conservative side.
Putting money into new products or ventures too late in the growth cycle.
If local competitors are already offering a particular product or service, following with the same offerings probably won’t win you points (or sales) with customers. The point here is to not fall behind the curve. Stay aware of what competitors are doing and offering. You don’t always have to be first out with something. In fact, experts say that when it involves doing all the legwork and educating of customers, taking the lead can be excessively expensive. So it’s OK not to be first. On the other hand, you don’t want to be last, putting your business in a ‘me too’ or also-ran position.
Not saving enough for your retirement.
NFIB says that this is the most common financial mistake made by small business owners! Sole proprietors, especially, should be putting aside a portion of every check received. This is ‘paying yourself first’—something we’ve all heard but don’t often practice. And if you’re a business owner with employees, set money aside for your retirement on a regular schedule, like monthly or quarterly. Don’t wait until the end of the year, because there will be always be reasons not to do it. Besides, smaller, regular deposits are easier to make and also have more time to grow.