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In 2023 questionnaire we looked at business owners in Nevada and the biggest challenges they faced. Entrepreneurs mentioned problems comparable to adapting to inflation, acquiring latest customers and managing money flow. The problems varied somewhat, but all centered around financial difficulties.
The reality is that small businesses are inclined to face greater financial challenges because they have fewer resources than larger firms. It’s easy to make mistakes, especially at the end of the year when things get busy. Let’s look at six common year-end financial mistakes entrepreneurs make and see how you’ll be able to avoid these problems.
1. Failure to recurrently monitor your funds
Many entrepreneurs make the mistake of not recurrently monitoring their company’s funds. They may delegate this responsibility to another person and have little insight into how the company is performing.
Working with financial professionals is a good thing, but you might want to have some understanding of your organization’s funds. Failure to watch your funds can leave your online business vulnerable to money flow problems and fraud.
It may even be tougher to make informed decisions about employment and long-term investments. To avoid this error, review your financial statements recurrently and not sleep thus far on metrics comparable to money flow, working capital and net profit margin.
2. Lack of tax planning
Tax season comes once a year, but if you are a small business owner, you must plan your taxes year-round. Proper tax preparation will make your tax season much less stressful and show you how to avoid unnecessary fines and penalties.
According to the tax officeone of the biggest mistakes many firms make is underpaying estimated quarterly payments. If you underpay throughout the year, you would be hit with a penalty. It’s a good idea to work with an accountant who will inform you about the amount of debt every quarter.
Another common mistake firms make is not separating business and personal expenses. This could cause you to miss out on deductions and overall can change into a huge headache when it comes time to file your tax return.
Make sure you have a separate checking account and bank card for all your online business expenses. The right accounting software means that you can track and categorize these expenses and routinely generates financial reports for you.
3. Failure to incorporate year-end expenses
When preparing financial forecasts, it is vital to take into account one-off expenses at the end of the year. For example, you could have to pay for a holiday party and Christmas bonuses for your employees. Your business may have to buy additional inventory to accommodate increased customer demand. You also can invest in year-end marketing activities.
Because these expenses are outside of normal financial planning, it is simple to underestimate the impact they’ll have on your budget. Additionally, bonuses and marketing campaigns are often variable costs, making them difficult to plan. You can predict these costs by reviewing your organization’s expenses for the previous year or two.
4. Avoiding all debts
Many people grew up learning that debt was bad and ought to be avoided at all costs. In your personal life, this is probably true in many cases. However, as a business owner, debt will be a tool that will be strategically used to grow the business.
For example, a small business loan or line of credit may permit you to purchase inventory or make a large investment in your online business. Just make sure the purchase matches your long-term business goals and that you just have a plan to pay it off.
5. Neglect of inventory management
If your organization sells products, inventory management will likely be key to your financial success. Carrying too much or too little inventory can result in money flow problems, lost sales and customer churn. Inventory management problems typically arise when firms use spreadsheets or manual tracking and don’t have real-time visibility into their inventory.
The best strategy to solve this problem is to make use of inventory management software. Appropriate software means that you can make decisions based on data and get monetary savings by eliminating excessive inventory levels. It also can facilitate negotiations with suppliers and order achievement.
6. Entering the latest year without a financial plan
If you wish your online business to proceed to grow, you wish a plan and specific goals for how you would like to achieve it. The end of the year is a great time to take a seat down, take stock of the past calendar year, and develop a financial plan for the coming year.
Review your balance sheet, profit and loss statement, and money flow statement to identify financial trends in your organization. Make sure your accounts receivable are current and review your vendor contracts. It’s also a good idea to review your insurance policies to make sure your coverage is keeping pace with your online business’s growth.
Once you understand where your online business is at, you’ll be able to start planning for the latest year. There are no guarantees in business, but proper financial planning is the best strategy to ensure your organization has the resources it needs to realize its goals.