Small business owners face a few unique challenges that are unique to their specific situation and thus need to do things a bit differently than the conventional wisdom spouted off by the “one size fits all” solutions the gurus present. The biggest areas I see center around cash flow and personal income.
The #1 mistake I see is not fully segregating business and personal finances. Make sure to maintain separate business and personal checking accounts and credit cards and that every business expense you are claiming is legit and defensible.
You need that separation to maintain distance and distinction to limit any legal liabilities, but also to keep the tax man away.
One other issue I see is not keeping enough cash in reserve on both the business side as well as personally. Many people have heard the rule of thumb on the personal side is 3-6 months of expenses, and for a business owner, I would lean toward 6 or even more depending on the kind of business you own. And don’t forget that you are going to want a reserve account on the business side as well, and potentially more than one for various different purposes.
A reserve account becomes especially important the more seasonal or cyclical your business is. You want enough in reserve to handle all the predicted ups and downs plus extra for the unexpected. The specific amount will be very business dependent of course as a service business will have very different requirements than one in manufacturing with a bunch of expensive equipment.
One other challenge that sometimes trips up business owners is pre-spending expected future revenue. You have a deal that you just know is going to go through. It might be from your best client that has done tons of business with you in the past and they told you they are going to make a huge order next month.
You take that statement from your client as guaranteed money in the bank, and thus go out and spend it on a fancy new piece of equipment that you have had your eye on for a while.
The problem then becomes that customer has something happen in their lives or business and never ends up placing that “guaranteed” order, and you are now stuck with an expense and no corresponding revenue.