Failing to track expenses, overspending, and hiring the wrong employees are some of the most common mistakes small businesses make that cost them dearly. These mistakes lead to wasted money, time, and resources that could land a small business in massive debt.

 

There are 32.5 million small businesses in the USA, and 20% of those could be gone next year. With small businesses having an incredibly high failure rate, it’s important to be aware of the most common mistakes that can cost a small business dearly in terms of finances and resources.

 

At Clarity, we work with small business owners struggling with their finances, and we’ve seen firsthand the impact wrong business decisions can have. Our guide aims to help small business owners avoid making these costly mistakes so that they can stay out of debt and grow their businesses successfully.

Failure to track expenses

One of the most common mistakes small businesses make is failing to track their expenses properly. Because many small enterprises rely on credit cards and personal loans to finance their business operations, it can be easy to lose track of how much money is being spent. This can lead to overspending and, eventually, high-interest loan balances with no way to pay them off.

 

To avoid this, it’s crucial to have a reliable system for tracking expenses. This could be as simple as creating a spreadsheet using Excel or Google Sheets or using accounting software like QuickBooks. Whatever method you use, make sure it’s one that you’re comfortable with, allowing you to track your expenses easily.

Overspending on office space

Another mistake small businesses often make is overspending on office space. When starting out, it’s tempting to lease a large office space in a prime location.

 

However, this can be a waste of money if you’re not using all the space. Furthermore, the slow start to making money could have you maxing out your business credit cards on rent payments faster than you can pay them off.

Instead, start small and only lease the amount of space you need. You can always upgrade to a larger space later on as your business grows

Hiring the wrong employees

One of the most common mistakes small businesses make is hiring the wrong employees. Often, the wrong employee isn't a nefarious or underqualified person but rather someone whose commitment to the company doesn't match the value a business puts into them.

 

This can be an expensive mistake, as it costs money to hire and train someone, taking up valuable resources that could be spent on more productive tasks. Furthermore, a bad hire can negatively impact morale and lead to low productivity and even lower profits.

 

Unfortunately, the fastest ways to overwhelming debt in the small business world are high turnover, low morale, and wasted company expenses retraining new hires.

So, finding quality employees who will be a good fit for your business from the start can save you a lot of money and debt-related sleepless nights in the long run.

Not having enough working capital

One of the most common mistakes small businesses make is not having enough working capital. Working capital is the money that a company has available to pay for day-to-day expenses and short-term debts. For example, if your monthly expenses are $10,000 and you have $5,000 in the bank, then you have $5,000 of working capital.

Many small businesses don’t have enough working capital because they’re using all their available cash to finance business-related products and services such as rent, utilities, and insurance coverage. This leads to reliance on lines of credit, not all with favorable terms.

 

Not having enough working capital can be a vicious cycle, often leading to more debt and less cash flow. As a result, it’s important to ensure you have enough working capital available to cover your business expenses.

The best way to do this is to create a budget and stick to it. This will help you track your expenses and ensure you have enough money to cover them.

Not diversifying your income streams

Another mistake small businesses make is not diversifying their income streams. When you have multiple revenue streams, weathering the business cycle’s ups and downs is easier.

For example, if you have a product-based business and you only make money when people buy your products, then you’re at the mercy of the market. However, if you have a service-based business and also offer consulting services, you’re less likely to be impacted by a downturn in the economy.

 

Diversifying your income streams can help insulate your business from economic downturns and other external factors that are out of your control. And as 8 in 10 Americans know, factors out of your control often lead to finding yourself or your business in massive debt. So, if you want to protect your business, you must diversify your income streams.

Not having a plan for growth

One of the final mistakes small businesses make is not having a plan for growth. Many small businesses get comfortable with their current level of revenue and don’t invest in strategies to grow their business.

As a result, they miss out on opportunities to increase their revenue and expand their reach. In many unfortunate cases, by the time a small business realizes they need to grow, it’s too late, and it's forced to close its doors and file for bankruptcy.

 

So, if you want your small business to succeed, you need to have a plan for growth. Consider speaking with a financial advisor, niche consultant, or marketing team to discuss ways to grow your business through new initiatives, product development, or franchising opportunities.

Avoid Debt with Smart Small Business Decisions

There are a lot of mistakes that small businesses make that can lead to debt and bankruptcy. But by avoiding these mistakes, you can improve your chances of growing your small business into a huge corporation. Of course, doing these things alone may not guarantee success, but they will help keep small businesses on solid financial footing and out of debt.

 

If you are a small business struggling with overwhelming debt payments and have nowhere to turn, reach out to reputable debt solutions experts such as Clarity. The compassionate debt resolution program may be the perfect way to get your small business out of debt and back on track for success.