As you may know, Holiday Season is the busiest time of the year for most small businesses nationwide. For this reason, holidays are the perfect occasion to learn, read, apply, and move ahead swiftly into 2022. Entrepreneurs! It’s time to start working on your small business financial planning! We’ll give you some insight into 4 common financial mistakes small business owners should always avoid. We think failure is the best teacher and that hindsight is critical when planning and preparing for success. Let's jump in!
1. Not having your small business financial records in place.
What is a reason for keeping organized financial records? Staying on track with your business success. If you want to avoid working long, hard hours with only unqualified success to show for your efforts, having your financial records in place should be one of your top priorities. Otherwise, you might not notice that the costs of your supplies have doubled or that the number of hours your employees’ work has increased and that you still haven’t raised your prices to compensate.
Tips to keep accurate financial records:
- Avoid financial record-keeping disasters.
Don’t sit down desperately looking for receipts and invoices over old drawers and mysterious envelopes every quarter. Instead, do your financial recording weekly, take time to store all this data in a categorized folder.
- Record your business financial activity.
Do it in an accounting program or spreadsheet Here are some useful apps to track your everyday finances
- Hire an accountant.
Don’t be afraid to delegate this task, but make sure you review your accountant’s work weekly.
2. Not keeping track of your business budget.
One of the most common mistakes new business owners make is not keeping track of their business budget or not having one at all. What is the importance of having a budget? A budget will help you track your financial obligations, such as future tax duties, insurance payments, and other regular expenses.
The first thing you need to do to create a budget is figuring out your cash inflow and outflow. In other words, how much is coming in and how much is going out each month. A simple way to check your budget objectives for next year is by listing your weekly revenue in one column and monthly expenses in another.
Tips for running your business budget:
- Make sure you have established budgets
Work on a budget that covers the different areas of your business. Meet with these areas at least twice a month to keep track of their financial performance. Read our tips to create the ideal marketing budget.
- Install Budgeting Software on Your Phone. These are our top recommendations.
- Don’t under-budget.
Set realistic goals and consider your business needs for next year. If you’re unrealistic about your spending, it’ll be hard to follow through.
If there’s anything this past year has taught us, there will always be unprecedented expenses.
3. Not having a Tax Planning Strategy.
Not staying on top of your taxes might be one of the most dangerous financial mistakes to make. Tax planning duties are no joke. You can quickly put your business at considerable risk if you don’t file your taxes correctly. Pause to plan how you will minimize your tax liability for next year. Pay close attention to important tax dates and get informed about the steps you can take to reduce what you owe legally.
It would be best if you kept in mind the most crucial tax deadline is April 15, 2022, the due date for your 2021 taxes. The IRS still hasn’t announced when they’ll start accepting 2021 tax returns, but this date usually falls around mid-February.
Tips to stay on top of your tax planning duties:
- Consider your business legal structure when paying taxes.
If you feel like you’ve outgrown your current business model, consult with your accountant or a financial expert to run a cost-benefit analysis.
- If you’ve received additional working capital for your business
Make sure you know which type of funding is subject to tax. Read more about the tax benefits of alternative funding.
- If COVID-19 financially impacted your business
You might be able to qualify for a refundable tax credit of 70% of up to $10,000 in qualified wages per quarter. To check if you are eligible for The Employee Retention Credit under the CARES Act, you must fill out Form 941. The deadline for Q4 is January 7, 2022.
- Don’t just ignore tax liability.
If you are a sole-proprietor and need more time to organize and file your 2021 return, you can ask for an automatic six-month extension through Form 4868. To request an extension for corporations and partnerships, file Form 7004, along with any estimated taxes due. Both forms are due before April 15, 2022.
4. Not monitoring Your business cash flow.
Did you know that 82% of small businesses close because they have insufficient cash flow? Eager new business owners often overestimate how fast they can start generating revenue and underestimate their expenses. Why does this happen? Because they are not monitoring their cash flow, another one of our serious financial mistakes.
You’ll probably run into cash problems if you don’t recognize the difference between cash flow and profits. Monitor your cash flow to make sure you keep your sales on record. If some of your big customers pay late or don’t pay at all, you may not have the cash to pay your bills on time. If your business is growing and you expand your expenses before you generate any new income, then you’ll also be in big trouble.
Tips for monitoring your business cash flow:
- If you have plans to expand your business
Make sure to estimate all your new costs and the time it can take you to get paid. Invest smart.
- Keep your statement of cash flow on track.
A cash flow statement summarizes the cash that is moving into and out of your business. Here’s how you can keep your cash flow strong and your small business thriving.
- Pay all your fixed bills on time.
Keep all deadlines for paying utilities, rent, payroll, and other fixed costs in next year’s financial planning calendar.
Prevent financial mistakes for your small business with working capital
Plan your business finances carefully for long-term success. To succeed with your new small business financial plan ahead of 2022 you might need more working capital. Once you have access to these extra funds, use them to invest in your planning and take remedial action to address each one of your financial goals.
If you don't qualify for a bank loan, don't worry! You can look into other options and access funding within days. Consider one of One Park Financial funding programs. Our funders offer options designed to meet the needs of smaller businesses. Business owners don't need a perfect credit score to be approved, as alternative lenders are more concerned about your ability to pay. Our application process typically takes minutes. Check if you pre-qualify here!