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The 3 Biggest Mistakes We See Small Businesses Make

The 3 Biggest Mistakes We See Small Businesses Make

Running a small business means that, as the owner, you’re wearing a ton of different hats. Things can fall through the cracks. It’s OK, that can happen. That said, we work with small business owners every day who are absolutely crushing it. How do they do it? Do they have some kind of superpower? 

No, not at all – they’re just quick learners who have figured out some ways to make their lives easier. That’s what gave us the idea for this post. What if you could skip past some of the mistakes that everyone makes and save yourself a ton of time (and money) with your back-office tasks? Here are the three biggest mistakes we see small businesses make and what you can do to make sure it doesn’t happen to you. 

For the purposes of this list, we’re going to assume that you’re already doing your books. If you’re not, then you need to get on that first. It’s about crawling before you walk

 

Your Books are too general (or in some rare cases too specific)

Oftentimes when we work with a small business and planning for their growth, we will see one glaring issue: their books are too generic. Often they’re only classified into a single line of expenses and sales. While that may be OK for your accountant doing your taxes – after all, a tax return doesn’t have to be that detailed – it most certainly ISN’T OK for the growth of your business.

When you boil everything down like that, it might make for easier reporting, but you won’t have the foundational financial statement, with a more detailed P&L. That’s what you need to be able to make informed decisions about your growth. Should you buy new equipment this year or wait until the next year? You’ll have to find out. 

A lesser problem: TOO detailed books

While this isn’t nearly as common as the above problem, we definitely also see folks who make their financial statement too detailed. What do we mean? Well, if you’re logging every single transaction as a separate line on your P&L, that might be too much. Sure, there could be some useful information, like let’s say you want to find out how much money you’re spending on X company for that month – but for most folks that’s probably overkill. 

 

How to formulate your financial statement as a small business

The first thing you’ll want to do is ask what your “key figures” are. There are certain ones that will probably carry over no matter the business, like cost and revenue, but there may be areas where you want more detail. Say, if worker’s comp and health insurance are significant cost drivers and you’re trying to ascertain value, you’d want to look at those on your financial statement. Start small, with less detail and then expand those charts based on the importance of the item. 

 

You don’t know how to classify fixed assets correctly

Buying equipment for your business is essential, and is usually a great way to help plan for tax season write-offs – but making sure that you classify that information correctly is an essential strategy for your business. When you write off large purchases as the loan payment amount you pay every month, you’re missing out on large tax benefits. Instead, you’ll want to designate those items as fixed assets. 

When you buy a piece of equipment, it might have a different lifetime than the span of your loan. Matching the expense with the income that’s generated is important. Every type of asset has a different lifespan. It could be three years, five years, even 39 years. Let’s say you buy a truck that’s going to last seven years, but you pay it back in three – you’ll still want to depreciate that asset over the next seven years. We might spend more time on this topic later if you’re interested, but be clear: if you’re buying large assets for your business, you need to make sure you’re classifying them correctly. 

 

You’re relying too much on automation 

We’re living in an age of automation – and for the most part that’s great! Automation can streamline many of the tasks that used to fall to you, or one of your team. Even old versions of financial reporting software like QuickBooks have pretty seamlessly integrated automation into their software. It can save you a ton of time when it’s done correctly – but when it’s not? That’s when you’ll have a problem. 

Look, automations are great – but they're also prone to human failure. Let’s say you automated a mistake at the beginning, when you first set up that reporting software. If you blindly trust the automation in your software, you might end up with an even bigger mess to clean up. It’ll happen every week – and you might not even realize until you reach tax season. Make sure your automations are running and reporting accurately. 

Building a small business takes a lot of time and energy. If you’re feeling like you could use some help, or maybe just some friendly advice – don’t be afraid to reach out. 

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