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6 Small-Business Money Mistakes (and How to Avoid Them)

Hurdles, mess-ups and setbacks naturally come with running a business. As the great fictional soccer coach Ted Lasso put it: "Taking on a challenge is a lot like riding a horse, isn’t it? If you're comfortable while you're doing it, you're probably doing it wrong." Ted also reminds us that “the harder you work, the luckier you get.”

It's true: The only way to grow your business is to work freaking hard and learn from the uncomfortable mistakes you’re bound to make. Then one magical day, if you’re “lucky,” you’ll enjoy the fruits of  success.

But what if you’re making mistakes without even realizing it? The truth is, no one is born knowing how to run a business, so let’s take a look at six common small-business money mistakes and how you can turn them around—or completely avoid them—and aim for steady growth.

Financial Mistake #1: Mixing Business and Personal Finances

Imagine you run a bakery from home, and to try to simplify things, you pay for personal groceries and rent from the same account you use to pay for bakery ingredients and equipment. Or say you run a home renovation business and sometimes pay suppliers from your personal checking account. In any business scenario, mixing personal and business finances is an accounting disaster waiting to happen.

Why? Because when tax time rolls around, you’ll spend hours trying to separate transactions to figure out your true income, expenses and deductions for your business. Doing taxes is never fun, but it’s even less exciting when you have to sift through receipts and bank statements before you even start plugging in numbers. If your ducks aren’t in a row, you could also easily miss deductions, overpay taxes, or pay interest and penalties for bad record-keeping or late filing.

Mixing accounts also leads to big problems like these:  

  • Cash-flow issues if you use too much money for personal items and can’t cover critical business operations
  • An unprofessional image that hurts your reputation with customers, suppliers and investors—and lowers their confidence in how you run your business
  • Personal risk, like losing your home and car, if you ever face legal issues
  • Trouble coming up with a fair asking price if you decide to sell your business, because you don’t have a clear picture of your true profit or loss

Solution: Keep your business finances and personal money separate.

Simply put: Don’t use your business account to pay for personal expenses, and don’t use your personal money to pay for business stuff.

Set up separate high-yield savings and checking accounts for your business, and pay yourself and your expenses out of that. Your tax accountant will thank you—and you’ll get so much peace of mind.

Don't Let Your Numbers Intimidate You

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Financial Mistake #2: Going in Debt to Build Your Business

A common business myth is that you have to use credit to scale your business. We get it. The pressure is real to compete with the big dogs and make an impact as fast as you can. And so is the temptation to borrow money you shouldn’t to purchase big-ticket items, hire more people, and expand operations—all in hopes you’ll quickly turn a profit.

But here’s the thing: The borrower is always slave to the lender. Whoever you owe money to has power and control you don’t have. Debt magnifies your mistakes. And you know what sucks more than a failed business deal or idea? Making payments on a failed attempt for months after it tanks.

Borrowed money kills your cash flow—which often kills your business. If you can’t generate profit quick enough to pay your loans, you put your business’s survival at risk.

Contrary to conventional wisdom, you can operate successfully without loans, credit cards or revolving lines of credit. How do we know? Because Ramsey Solutions has grown into a national brand 100% debt-free. And thousands of other businesses of all sizes also operate without debt because they follow our EntreLeadership system

Solution: Operate at the speed of cash.

Remember: In the same way the tortoise beat the hare, slow, incremental growth beats getting in over your head in debt only to crash and burn. So pay with cash—even if you have to scrape nickels from the couch or save up for big purchases. That could look like:

  • Renting until you can pay with cash
  • Outsourcing services like printing
  • Buying used items
  • Making expensive purchases only when you need to (not want to), when you can pay for them with cash, and when they’ll end up making you money

Financial Mistake #3: Not Knowing Your Numbers

Business owners are warriors. They work long hours, fight the competition, and would storm hell with a water pistol to make their vision a reality. That is, until it comes to one classic weak spot—accounting. Many business owners would rather have a tooth drilled without novocaine than deal with their numbers.

Sound like you? We get it. You might be tempted to put your numbers into the hands of your bookkeeper or accountant and just forget about them—but that’s one of the biggest small-business money mistakes you could make.

Your bookkeeper or sketchy accounting system can mask money problems when business is fairly good. But as Warren Buffett warns, “You don’t find out who’s been swimming naked until the tide goes out.” When you don’t know how much money’s coming in and going out, you’ll end up facing problems like:

  • Shock, embarrassment and strain when you have to stop a building project or business activity halfway because you ran out of money
  • Crisis when financial emergencies happen (and they will)
  • Inability to plan for purchases, raises and taxes
  • Embezzlement

As the Bible says, "Be diligent to know the state of your flocks, and attend to your herds." (Proverbs 27:23 NKJV). That doesn’t mean you have to do the accounting and bookkeeping yourself, but you do need to know your numbers.

Solution: Know your numbers.

You don’t have to handle the details of your company finances, but you do need to regularly look over the work of the person or people handling your finances. It’s also important that you:

  • Spot-check payables every week and ask questions so the people managing them know you’re aware of what’s going on.  
  • Establish retained earnings for emergencies and opportunities and know how to calculate them. 
  • Meet with your key leaders to close your books monthly. This is when you’ll review your profit and loss statement to understand what’s happened and use that information to project future income and expenses.
  • Regularly review your budget and make sure it’s still centered on your goals.

Financial Mistake #4: Making Big Purchases for All the Wrong Reasons

An all-too-common small-business money mistake goes something like this: You see that new, souped-up gizmo—say a truck for your construction business—and just have to have it. You tell yourself the purchase will make you look more legitimate, and you’ll even get a tax deduction to offset the hefty price tag and loan that straps you down to buy it now. The thrill is real—that is, until someone hits your shiny new toy with a backhoe and its value instantly nose-dives.

Though you may try to convince yourself you need the latest thingamabob to impress clients, increase productivity, and earn more profit, you don’t. Instead of throwing away tens of thousands of dollars for luxury items you don’t really need, what if you paid cash for modest versions of what you do need? You’d end up with more margin to grow your business!

So, when it comes to making business purchases, beware of:

  • Overpaying for bells and whistles you don’t need or tools that don’t bring a return
  • Buying things purely for a tax deduction—that’s like trading a dollar to make 35 cents
  • Saying something is for your business if it’s really for personal use (when the IRS sniffs that out, you’ll lose your shirt)

Solution: Act your wage.

The most successful businesses wait until they have the cash on hand to buy nicer things. That’s acting your wage. No deal was ever made or lost based on the couch in the reception area. That’s ego. So operate your business with the resources you have. To do that, you should:

  • Live on less than you make.
  • Delay purchases until you can really afford them.
  • Only buy things that you truly need and that will help you make money.

Financial Mistake #5: Not Paying Your Bills and Taxes on Time

Not only will late payments rack up extra fees and penalties, but no one wants to work with someone who’s a pain to collect from. When you pay late, vendors lose trust in you and don’t do their best to serve you. And when you can’t cover your tax bill, the tax man will come for you. He will always get paid, hitting you with steep penalties and interest and seizing your assets to cover what you owe.

So, what gets a lot of businesses in the bad cycle of late payments or no payments?

  • Not knowing your numbers
  • Borrowing funds to operate but never catching up on cash flow and profit to cover costs
  • Operating without a budget
  • Failing to hold back earnings to cover taxes
  • Dipping into accounts that are meant to only be used for taxes and paying bills

Solution: Pay what’s owed by the due date.

When you stick to a budget you’ll find it’s a lot easier to stay on top of accounts payable. Your budget helps you look and plan ahead. Then you won’t have scattered bills and scary late notices hanging over your head. Operating on a budget is offense number one, but here are some other ideas to keep you on top of due dates:

  • Get out—and stay out—of debt.
  • Plan big purchases so you’re ready to pay when they’re due. (That’s part of acting your wage too!)
  • Set aside about 25% of your earnings to pay toward taxes quarterly.
  • Treat your tax and bill-paying funds as untouchable—until it’s time to pay those taxes and bills. except for doing their job.
  • Talk with a tax pro to figure out your specific tax rate.

Financial Mistake #6: Focusing Only on Your Profit

Sure, you’re running a business—not a hobby or charity. Profit keeps your business alive and allows you to enjoy the fruits of your labor. But making money only so you can buy cool stuff and feel important leads to an empty life.

Don’t get so locked in on making money that you neglect the people side of your business—your team members, customers and community. When you take care of them, they become evangelists for your business. And with the right perspective, the more money you make, the more fun you’ll have fulfilling your mission and the greater the impact you’ll have.

Solution: Be generous.

Remember, you’re blessed to be a blessing, so treat others the way you want to be treated. That includes creating margin to show extra kindness. For example:

The six solutions we just walked you through are EntreLeadership’s 6 Profit Principles—aka your guardrails against money mistakes. When you use them together, you set a strong foundation for better money decisions and healthier financial margin to grow your business.

What’s Next: Work Hard and Enjoy the Luck

In the spirit of Ted Lasso (and Dave Ramsey), turn your challenges and small-business money mistakes into launching pads for steady growth, rich success and service to others.

Want more details on the 6 Profit Principles (and 4 Key Practices to Create Financial Peace in Your Business)? Check out the EntreLeader’s Guide to Business Finances.

Download Guide

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Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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