Many small business owners struggle with financial management. As a small business owner, it is your responsibility to make sure your business is growing and thriving in the most effective way possible. If you're not careful, however, you could end up making costly financial mistakes. 

The U.S. Bureau of Labor Statistics shows that approximately 20% of small businessesfail within their first year, with that figure increasing to 45% by their fifth year. While many factors contribute to small business failure, one of the most significant is cash flow and financial management problems. 

From cash flow issues, such as a lack of budgeting, to inaccurate bookkeeping practices, a lot can go wrong if you aren't paying careful attention to your business’s finances. 

Whether your business is just opening its doors or has already made it through the first few years, implementing smart financial practices is of the utmost importance. To prevent a financial disaster, make sure you aren't making these five common financial mistakes:

1. Failing to separate personal and business accounts

When many entrepreneurs first start their business journey, they neglect to open a separate business account, believing it will be easier to work from their personal account – at least until they've made enough progress to start seeing returns on initial investments. 

While it's true that you can work from your personal bank account, it's not the best idea. Keeping your personal and business accounts separate will allow you to track all business expenses and maintain your business budget properly. 

2. Not tracking your expenses

When your business is first getting off the ground, you may not have a lot of capital to invest in its growth. That's why it's essential to track your expenses and actively manage and monitor your finances. 

If you don't track your expenses, it's easy to spend money you don't have. For example, you might think that you can use your personal credit card to pay for your business expenses, but you will still have to pay that back, along with any interest that accrues while making your payments.

You don't want to be in a situation where your debt continues to grow, and you want to avoid the financial disaster that comes with not being careful with your cash. 

3. Not setting a budget for your business

Budgeting is an essential part of financial management for your small business. It allows you to adequately monitor your cash flow and make sure you're not spending more than you have coming in. 

If you're not careful, you could completely miss out on a financial detail that can significantly impact your business. For example, if you're constantly adding new products to your catalog without consulting your budget, you might not realize that you're not making enough profit to cover the additional expenses of these new products. 

You also want to budget for future expenses, which will also help ensure that unexpected costs won't catch your business off-guard. 

4. Neglecting your business credit

Many small business owners neglect their business credit and don't realize that it's an important part of financial management. Small business owners need to maintain good business credit in order to grow.

If you neglect your business credit, it's easy to rack up debts and end up paying more in interest than you should. A poor business credit score can also make it more challenging to get loans from banks and other lenders, which will be necessary if you want to grow your business in the future. 

Once you understand where you currently stand, you want to take the necessary actions to maintain and improve your business credit. Start by:

• Paying off your business debt and credit card debt;
• Paying your business's regular monthly bills and other expenses;
• Check your credit report regularly for changes or unauthorized activities;
• Keep your credit utilization to a minimum.

5. Ignoring your business taxes

When it comes to financial management, you want to do everything to make sure your business is as successful as possible. When first starting out, however, many small business owners tend to forget about business taxes. If you're not careful, this could cost you big. 

Make sure you're filing your taxes on time, keeping your business current with due dates, and staying compliant. You also need to make sure you are including taxes owed into your budget so that you don't find yourself scrambling for cash at the last minute.

Learn and grow with more BBB tips

As a small business owner, it's essential to manage your business finances as effectively as possible. Small business financial management can be a complex process, but it's key to your business's long-term success.

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