4 Bad Financial Decisions That Can Hurt Your Small Business

Managing finances can be a challenge for small business owners. You might be an expert in making your product or providing a service, but managing your business finances is a significant part of small business success.

If you don't have a lot of experience with managing business finances, it can feel overwhelming and easy to slip into bad financial decisions that could harm your business.

Here are four financial decisions you will want to avoid.

Mixing personal and business bank accounts

Not separating your personal and business bank accounts can cause a ripple effect throughout your financial future. Separate accounts can make it easier for accounting, budgeting, and reconciling your books and help you avoid financial headaches.

Not having enough cash reserves

Optimism is a great trait to have, but in business, so is realism. Starting our business with adequate operating cash is critical, as is maintaining cash reserves along the way. Doing so can be the difference between business survival or needing to shutter your business if something unexpected comes up (which might be totally out of your control, i.e., COVID-19). Don't fool yourself with wishful thinking that the money will somehow be there!

Being dependent on credit cards

Some small business owners use credit cards to survive the early stages of business. But credit cards carry high-interest charges and annual fees, so it’s essential to be intentional when using them. Small business loans or using your own capital can save you from getting over your head in credit card debt.

Not paying yourself

It’s common for small business owners to roll all profits back into the business, especially in the early stages. However, not compensating yourself along the way could harm your personal finances and financial good standing, so make sure you plan for your compensation before it gets to that point.