One of the best (and worst) things about working with so many different businesses is being able to spot trends when it comes to financial mistakes. No matter the industry, no matter the size—so many business owners have the same money issues.
Here are the 10 most common financial pitfalls I see, and exactly how to dodge them.
1. Confusing revenue with profit
“Holy cow, look at all our moolah rolling in!” Cool, but what’s actually left after expenses? Just because you’re making sales doesn’t mean you’re making money. Keep an eye on your actual profit margins, or you’ll be one big invoice away from sleepless nights.
How to avoid: Don’t get overexcited when you make sales—look at your actual profit margins. Use accounting software (like Xero) to track revenue and expenses properly (it’s easy using their reporting features), so you always know what’s left. That huge sale you just made might only make you £50 in the end, so make sure you’re either viewing reports regularly, or calculating actual margins for your sales.
2. Not keeping track of cashflow
Being profitable on paper doesn’t mean much if you have no cash in the bank. If you don’t know when money is coming in and going out, you’re just guessing (and that’s not a good business strategy).
How to avoid: First, make sure you have a cashflow forecast. There’s software out there to help, or create a spreadsheet, or ask your accountant to set one up for you. Then, have a simple weekly cashflow check-in—five minutes every Friday. Look at what’s coming in, what’s going out for the next six months so you have plenty of time to pivot.
3. Treating your business bank account like a personal piggy bank
No matter how tempting it may be, your business account shouldn’t be your personal slush fund. Random cash withdrawals, personal purchases on the company card, or “borrowing” from business funds to buy something fancy? It’ll only set you up for tax confusion and financial disaster. Pay yourself properly, and keep personal and business separate.
How to avoid: It’s simple: use your business account for business stuff, and your personal account for personal stuff. Then stick to it. Pay yourself a proper salary instead of randomly dipping into business funds when you feel like it.
4. Ignoring tax until it’s a crisis
Ah yes, the classic “oh sh*t” moment when you realise tax is due and you haven’t saved for it. Unfortunately, HMRC doesn’t care if you forgot, so VAT, corporation tax and Self Assessment tax aren’t things you can just pretend will go away.
How to avoid: The best way to avoid any tax surprises is to speak to your accountant. They can help you figure out estimated bills, and can set up a schedule so you know exactly when taxes will be due. It’s also a good idea to set aside 20-30% of every invoice into a separate account immediately when you get paid. Although it’s no fun to see that money sitting there with nothing to do, future-you will be a lot happier when the tax bills roll in and you’re not scrambling to find the cash.
5. Paying for crap you don’t need
Hands up if you have random subscriptions quietly draining your account, or small, unexplained transactions going through your books that you ignore month after month. If you’re not using it, or don’t know what it is, you might as well set fire to that money.
How to avoid: Do a monthly expense audit. Comb through your bank statements, find anything you haven’t used in three months, find out the source of unexplained payments, and sort it out. Need help spotting the leaks? Use a tool like Snoop or Emma to flag recurring payments you might have forgotten about.
6. Not invoicing on time (and not chasing late payments)
You’d be shocked at how many small businesses forget to send invoices and then wonder why their cash flow is a disaster. Also, clients who conveniently “forget” to pay? You need a system in place to chase those invoices—automatically if possible. Your business isn’t a charity.
You’d be shocked how many business owners forget to send invoices, then wonder why their cashflow is a disaster. Also, ignoring clients who conveniently “forget” to pay? You need a system in place to chase those invoices—automatically if possible.
How to avoid: Send invoices immediately after completing work—no “I’ll do it tomorrow” (tomorrow turns into the next day, then into the next day, repeat, repeat, repeat). Use accounting software to set up automatic payment reminders, so you don’t have to chase people manually, or delegate credit control to a team member or outsourced VA to make sure you get paid when you’re supposed to.
7. Undervaluing and underpricing yourself
If you’re still pricing your services based on what feels fair instead of what covers costs and makes a profit, stop. Now. Underpricing makes you work twice as hard for half the money—and clients have less respect for a bargain bin rate.
How to avoid: Price based on value, costs and data, never on how prices may feel. If you’re not sure what to charge, check industry benchmarks and test tiered pricing to make sure you’re covering your time and making a profit.
8. Assuming profit = spendable cash
Your P&L says you profited £10k this month, but your bank account is looking a little… sad. That’s because “profit” doesn’t mean you actually have that cash to spend.
How to avoid:Make your cashflow number one in line, not your P&L report. Yes, they’re both very important when it comes to your business finances, but your cashflow is what tells you if you’ll sink or swim.
9. Doing everything yourself
Bet you never thought running a business would mean you’re the bookkeeper, HR consultant, admin assistant, sales rep, operations director, tax advisor, brand manager and CEO—also known as exhausted. If you’re drowning in tasks that are keeping you from growing your business, something’s got to give.
How to avoid: Outsource to experts. Whether it’s hiring a VA, a fractional creative director or a tax specialist, free yourself up to actually run the business instead of firefighting all day. Start with just one thing (the thing you’re currently spending the most time on) and build from there.
10. Avoiding financial reports
If checking your finances consists of peeking at your starting balance every month and hoping for the best, you might need to up your game a wee bit. If you don’t, you’re basically running your business on gut feeling, which is never a good thing.
How to avoid: Set aside 15-20 minutes a week to check your profit & loss, balance sheet, cashflow forecast, and bank statements. Make it a habit—because wiping up a small spill now is way easier than cleaning up a giant mess later.
The best part about common financial pitfalls is that they’re all fixable. It just takes a little awareness, some good systems, and the willingness to stop winging it.
Questions about your tax position?
We're happy to walk through any of the above in the context of your specific situation. No obligation, no jargon.