With so many things to think about when running a business – whether you're just starting up or you've had your doors open for years – there is a great deal of potential for error when it comes to financial health. Following are 10 mistakes you should try to avoid:

1. Not having an emergency fund

One of the biggest mistakes you can make as an entrepreneur is to not have an emergency fund to tap when times get tough – and they most likely will get tough sooner or later. Make sure to set up a business savings account if you haven't already.

2. Not using financial professionals

Don't hesitate to seek the help of financial professionals for your bookkeeping and advisory needs. A lot of entrepreneurs start businesses because they are passionate about a product, service, or industry. That doesn't mean that they are financial experts. You also may not have the time required to give the kind of attention to detail your business's finances require. Chances are, you are already wearing many hats, and this is one area you can’t afford to neglect. Getting professional help can make a world of difference and help prevent headaches that may arise from your own lack of expertise.

3. Overspending on inventory

A mistake many beginning entrepreneurs make is buying more inventory than needed. Besides the problem of storing and maintaining the overstocked items, if they’ve borrowed money to buy or produce the goods, this can leave them with debts that hurt their cash flow. Experienced entrepreneurs tend to be good at getting a handle on this, but for startups, it might be tempting early on to load up as you prepare to unleash your business on the world. Avoid the temptation and keep a realistic outlook.

4. Not emphasizing cash flow

Cash flow needs to be a major area of focus within your business. It's easy to get caught up in profits, but without a consistent and healthy cash flow, you may find your business in financial hot water, even if the profits are there on paper. You must continuously analyze sales, accounts receivable, and shortfalls and stay on top of them.

Don't fall into the trap of having too much money tied up in accounts receivable. Sales are good, but getting paid promptly for sales is always better. An outstanding account is not the same as money in the bank, and you can't use it to pay your bills.

A business line of credit1 may help you smooth out the rough spots in your cash flow by providing backup funds during slow periods or while waiting for customers to pay you.

5. Not looking past the short term

Frequently assess your long-term goals and how you're doing on the path to achieving them. Your emergency fund can play into this, and so you can your retirement plans, which should include a succession plan. It may be wise to consult a business banking professional who can help you develop long-term goals for your company and yourself.

6. Failing to pay yourself

Don't forget to pay yourself a salary. Your passion likely lies in your business itself, and you may want to keep every cent possible in that, but you have to take care of your personal finances as well. Otherwise, you risk putting yourself under unnecessary stress, which may end up hurting your ability to effectively run your business.

7. Not keeping personal and business finances separate

It's imperative to keep your business and personal finances separated. Failing to do that will almost certainly lead to financial turmoil on one side or the other.

8. Spending too much in the beginning

Entrepreneurs may spend too much on items such as expensive office space, furniture, company cars, etc. There is something to be said for presenting yourself in the best light possible, since it can reflect on your brand. However, the financial strain you put yourself in by overspending is a far more pressing issue.

9. Not planning for taxes

Not planning for taxes is an obvious, but major mistake, and it's one that far too many entrepreneurs make in the early days, especially if they’re accustomed to receiving a paycheck from an employer with taxes withheld. Be sure to make your estimated tax payments each quarter to avoid having a huge bill to pay when the tax deadline rolls around.

10. Not sticking to a budget

A budget can help you control overspending and remain cash flow positive on a consistent basis. Start out estimating how much you’ll bring in each month and how much you’ll spend, and then adjust your budget as you get up and running and see how accurate your original estimates were.

Entrepreneurs make mistakes. It comes with the territory. Still, if you can avoid those listed above, you'll be positioning yourself for a much more successful endeavor.

1. Subject to credit approval. Terms and conditions apply. See a banker for details.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC