8 Financial Mistakes To Avoid In Service Businesses

Finally…You have the business of your entrepreneurial dreams and you’re in charge. 

Now that the whiskey glasses have clinked in celebration, it’s time to get into the nitty gritty details of what it is really like to be a business owner. 

Owning a business comes with a lot of responsibilities. While you don’t need a business or finance degree, you do need a good understanding of your business’s financials. And, more importantly, a good understanding of common startup financial mistakes to avoid. Otherwise, you could risk your good standing with the IRS, ability to close deals, options to scale, and more.

As the owner of a service business, here are the financial mistakes you’re better off avoiding altogether. 

1. Forgetting About Cash Flow

Seeing dollars hit your bank account can be euphoric to a business owner. While you should definitely pat yourself on the back for bringing that money in, you should also pump the spending breaks. It is crucial to have more money coming in than going out.

Without a comprehensive understanding of your cash flow, you could be spending money frivolously rather than putting the funds where they really need to be. 

What Cash Flow Tools Do You Need?

Give your business the chance to be as successful with these cash flow tools:

13-Week Cash Flow Report

With a 13-week cash flow report, you can predict your cash flow over the next quarter. From a high level, you’ll be able to see the weeks where you might be a little bit short. Having this information can help you make better decisions on when to make purchases and what to sock away in savings.

Sales Forecast

This tool will allow you to predict your sales funnel to see when you need to schedule resources, slow your spending, and be more efficient with your cash flow. 

Budget (Comparison Against Actuals)

Making a budget is a great place to start, but it is far from the finish line. You need to really get in the habit of comparing your budget vs actuals. This means looking at what you’ve originally budgeted for the month, quarter, or year and then comparing it to what is actually happening with your financials and cash flow. 

Download my guide, 6 Mistakes Every Small Business Needs To Avoid, and get on track to make your business a true success!

2. Neglecting A Rainy Day Fund

While you may feel good about the income you’re generating, it’s also important to plan for unforeseen emergencies. 

A good rule of thumb is to average your expenses for a month. Then make sure you have at least 3 months’ worth of expenses set aside in a rainy day fund.

Not only will this practice get you through unknown future obstacles, but it will help prevent a lot of unnecessary stress when that time comes. 

3. Commingling Personal & Business Funds

If you are running your business and personal life out of one bank account – this is your wake up call to stop. 

Commingling funds means you’re not keeping your personal and business funds separate. It can cause many different issues for you down the road. 

It’s not just about having a separate bank account. Additionally, you need to make sure that all incoming money is deposited into your business account and that all expenses are paid from your business account. Furthermore, the same goes for credit cards – get in the mindset to never use your business accounts for personal use and vice versa.

Not only can commingled funds make taxes a nightmare, but you also risk piercing the corporate veil. 

What Is The Corporate Veil? 

Remember when you filed the paperwork to establish your business as an LLC, corporation, or another entity?

The protection of the corporate veil is possibly one of the most important benefits of official business entities. If done correctly, your personal assets are shielded from any legal issues your business may encounter. However, if you commingle funds, you have pierced the veil. This means that your personal funds are up for grabs in the event of a lawsuit. And trust me, if someone is suing you – they will go after everything they can. Keep your life savings and other assets protected for your future by keeping your personal and business funds separate.

Ready to see the hard work you're putting into your business pay off? Download my guide, 6 Mistakes Every Business Owner Needs To Avoid, and start seeing real progress.

4. Not Paying Yourself

As a business owner, you put a ton of effort into your company’s everyday details. Shouldn’t you be rewarded for your hard work?

Not paying yourself, or even underpaying yourself, means you are undervaluing the worth of your services. 

While I applaud the determination to continue reinvesting every dime into your growing business, the unfortunate truth is that you’re more likely to burn out instead. 

If you need help determining how much to pay yourself, think about how you would compensate someone else for doing your job. Not only will you be properly rewarded for your efforts, but you’ll be less likely to experience burnout. 

5. Doing It All Yourself

Even though you set out to be an entrepreneur to do it yourself, you need a support team. Just like the risks of not paying yourself, trying to do it all alone can also lead to feelings of overwhelm and burnout. Moreover, you could be putting your business in serious jeopardy by trying to take on responsibilities that are out of your wheelhouse.

To keep your business strong, here is everyone that I advise you (at the very least) have on your team:

• Business attorney
• Bookkeeper and/or CFO coach (like me)
• Business banker
• CPA for taxes

You want your business to go the distance and stick around, right?

Assuming your answer is “Hell, yes!”, then it’s time to start being realistic about what tasks you can handle…and which are better left to the experts.

For instance, if you aren’t familiar with tax laws, you are likely not getting all of your available tax deductions. 

6. Forgoing Necessary Insurance Policies

One of the most serious financial mistakes you can make is being underinsured. While you may resent the monthly payments, going without could possibly cost you tens of thousands of dollars – or more. 

This is because not having insurance means you are responsible for paying expenses, like property damage and liability claims, out of your own pocket. 

The numerous types of insurance policies you need may surprise you. It’s a good idea to consult with an insurance broker to discuss your needs and explore packaged policies to save money.

7. Hiring (And Firing) Without A Plan

As a business owner, scaling your business and adding team members is exciting! 

But…you need to be strategic about how you hire employees. Moreover, when people show you who they are – believe them. Someone can tell you everything you want to hear. But in life, actions speak louder than words. 

Take the time to hire the right people. And be realistic and swift when it comes to terminating employees that aren’t fulfilling their duties.

8. Neglecting Your Physical & Mental Health

Your team, customers, and business require the best out of you. But it’s easy to let yourself go for the sake of your business. 

If you’re focusing on being everything to everyone but yourself, how will you have the energy or motivation to keep moving forward?

This is why it’s so important to create those boundaries. For instance, schedule breaks in your days. Rest when you feel tired. Go for a walk when you feel stressed. Overall, keep your physical and mental health a top priority. Otherwise, you may burn out quickly, and the dreams of what could have been with your business may vanish. 

After all, what’s the point of having a successful business if you don’t have the time or energy to enjoy its rewards?

Grow Your Business Successfully With Harrington Strategic Partners

No one expects you to have all the answers. In fact, a major part of being a good business owner is knowing when to ask for help.

Whether you’re on the verge of unveiling your newest venture or have been in business for decades, there’s always room for improvement. I can give you the tools to make your life easier and your business the success of your dreams. 

Want to learn more? Download my guide, 6 Mistakes Every Business Owner Needs To Avoid, today!