Revenue is critical to all businesses. But why a business fails often has less to do with revenue and more to do with blind spots. Specifically, there are six common mistakes that often prove fatal to small businesses.
Focusing on taxes vs operations – lack of financial planning leads to many problems that surface even before the business generates any revenue. Having income tax returns that focus on creating a zero-dollar tax liability instead of focusing on accurately reporting the result of operations limited owner’s ability to secure EIDL and PPP loans.
Failure to forecast – Business owners make even with they start with the right financial planning. Rapid growth is often the culprit. Entrepreneurs frequently fail to use information on hand to build proper budgets that inform decisions to invest or cut costs and support scalability. Cash flow woes are the first warning sign that a business needs to adjust its forecast. Being prepared allows a business to continue operating successfully despite economic bumps in the road.
No marketing plan – this is a common shortcoming that is more frequent than one might guess. Entrepreneurs also misperceive marketing as an expense instead of an investment. Sadly, the marketing budget is often the first thing cut in tough times. Generally speaking, the marketing investment is directly related to a business’s projected increase in sales.
Combining personal and professional bank accounts – this is a frequent problem for small business owners. They co-mingle funds creating unintended financial, tax and legal liabilities. Business owners should seek to separate their accounts and correct the situation right away.
Following unqualified business advice – there are unintended consequences in taking strategy, tax, and financial advice from family and friends instead of a qualified professional. Business owners should have a trusted inner circle that offers input, but when it comes to business strategy, tax and financial decisions, they should accept the counsel of a professional only.
Misusing an LLC – this is one of the most common new business mistakes. Many business owners follow online advice and form an LLC for their business without understanding how an LLC is taxed. They file their returns incorrectly, creating tax debt and liabilities. It is important for the business to be properly structured upfront, but even if there is an unfavorable setup, it still may be possible to get things corrected with qualified legal and tax advice.
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