14 Financial Mistakes That Could Devastate A Small Business

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getty While larger businesses often have the resources to recover from a financial misstep, small businesses may not have that luxury. Certain money mistakes can be devastating for an entrepreneur or small company that is seeking to maintain steady revenue, especially in a challenging economy. From falling prey to escalating […]

While larger businesses often have the resources to recover from a financial misstep, small businesses may not have that luxury. Certain money mistakes can be devastating for an entrepreneur or small company that is seeking to maintain steady revenue, especially in a challenging economy.

From falling prey to escalating bank fees to overusing personal credit accounts for business reasons, the members of Forbes Finance Council have seen various financial missteps among small businesses during their careers. Below, 14 of them share one money mistake entrepreneurs and small-business owners often make that could have serious consequences.

1. Failing To Save For Emergencies

Small businesses and entrepreneurs must be prepared with emergency cash flow. Machines require servicing, supply chains get broken and expenses aren’t precisely estimated. Even if a company is unprofitable or breaking even, a rainy-day fund protects it from unforeseen issues that require immediate additional money. Without it, the result can be detrimental to growth or catastrophic to the business. – Jeffrey Bartel, Hamptons Group, LLC

2. Not Using Professional Accounting Services

Short spending on the accounting function can prevent an entrepreneur from ever knowing their true performance. If accounting is laboriously slow or constantly inaccurate, hit the “easy” button and hire an outside consulting firm to help you. Let an advisor assess your team and find deficiencies, then pivot. It’s easier to win knowing the score of the game during game time than it is four months later. – Matthew Goldston, PKF Texas


Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?


3. Not Managing Goals Through Data

Align your revenue/expense budget with your cash flow and burn rates. Implement scorecards for every department, and align key performance indicators with your budgets. Update weekly for insight into areas of challenge, and pivot quickly to correct. Manage your goals and expectations through data; performance-driven organizations have solid visibility into cash flow and fewer “surprise” highs and lows. – Cynthia Hemingway, Fourlane, Inc.

4. Not Closely Monitoring Digital Advertising

Losing track of your digital advertising can be a costly error. Whether you’re advertising on Facebook, Instagram, TikTok or Google Ads, customer acquisition isn’t cheap. Small businesses are handing over tons of cash to ad platform vendors that aren’t calibrated to help you nail high-performing ads. Entrepreneurs must watch their campaigns like hawks, because they can suddenly underperform, losing tens of thousands of dollars with no recourse. – Jaideep Singh, FlyFin AI, Inc.

5. Losing Control Of Overhead And COGS Expenses

Not restricting overhead expenses to a percentage of total sales is one mistake. Give yourself a benchmark of what you feel comfortable with: For example, say 30% of sales goes to overhead. Second, restrict your cost of goods sold to a benchmark as well—say, 45%. Lastly, manage your cash flow. Schedule receivables collections and vendor terms to coincide as closely as possible so you are not fronting cash. A cash flow review is vital to a small business. – Thomas Johnson, Southport Marketing, Inc.

6. Not Planning For Income Taxes On Profits

Many entrepreneurs, especially while in the growth stage, have tunnel vision focused on marketing, sales and fulfillment. If they don’t add tax planning into their strategy, they can find themselves owing large amounts of income tax at the end of the year—a situation that could have easily been avoided. This can lead to depletion of reserves, tax debt and other issues. – Jerry Fetta, Wealth DynamX

7. Passing Over Unpaid Invoices

One big problem I often see is business owners not focusing on getting payments from their clients. Multiple studies in recent years have found that 64% of small businesses have invoices unpaid for upward of 60 days. This is a huge mistake when you consider how important a healthy cash flow is to a business. If an owner isn’t keeping a close eye on the money coming in, they won’t end up with enough to cover their expenses. – Nick Chandi, ForwardAI

8. Overlooking Cash Flow Budgeting

Small companies often budget their profit and loss, but not their cash flow. While forecasting income is important, managers also need to look at cash flow when planning. Don’t let quarterly or annual expenses sneak up on you. Small or pre-cash businesses need to be especially cognizant of company solvency. – Glenn Hopper, Sandline Global

9. Cutting Costs In The Short Term

Cutting costs in the short term often results in overspending in the long run. Take tech stacks, for instance. It’s tempting for startups to source their tech in-house rather than spend more on third-party tech. More often than not, however, these startups will eventually have to use a third-party vendor since small companies don’t employ the extensive IT teams needed for support. Invest wisely! – Mara Garcia, Phonexa Holdings, LLC

10. Having An Unrealistic Sense Of Cash Flow

The simple answer is money. Small businesses frequently fail because the owner runs out of working capital—the money to operate the business. The answer is a carefully detailed business plan with a realistic sense of cash flow. The product may be great. And you can sell it. But what does it cost to replace inventory, and when do you have to pay? And what about taxes? – Dr. Philip Fischer, Micro Macro Infinity

11. Misaligning Customer Payment Terms With Business Expenses

Misaligning your customer payment terms with your expenses can be a quick path to bankruptcy. A growing business can easily fall into a cash crunch if they collect payments a significant time after their costs are paid. Matching your cash outlays as closely as possible to your cash collections is a good rule of thumb for solvency. For instance, if you pay under net 30 terms, don’t collect under net 60 terms. – Aaron Spool, Eventus Advisory Group, LLC

12. Neglecting To Pay Yourself First

Never forget that cash is king. A common mistake that entrepreneurs make is neglecting to pay themselves first. While on its face this principle seems selfish, it is actually quite the opposite. In order to ensure long-term success, an owner must have enough cash so they can continue to take care of those they employ and future business. – Joshua Sherrard, Strategic Navigators Inc.

13. Having Inadequate Cash Flow

Most small businesses fail because of inadequate cash flow. This can be mitigated by creating a budget, also known as a projected cash flow statement. Review past expenditures and forecast future expenses. Find places in the budget where you can increase cash flow. For example, collect on accounts receivable or get longer terms from vendors. – Jared Weitz, United Capital Source Inc.

14. Leveraging Personal Credit For The Business

Avoid leveraging your personal credit to support your business. Most small businesses struggle with cash flow. But when an owner infuses cash into a business without fully analyzing the consequences, really negative results can follow. My advice is that you carefully document your reasons and processes for loaning the business money, and set limits so you don’t permanently damage your personal wealth. – Todd Sixt, Strait & Sound Wealth Management LLC

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