Did you know that concealed financial mistakes could be discreetly eroding your SME’s profits? 

It’s a disconcerting thought, yet countless small business owners are unknowingly making expensive mistakes. 

Don’t fall into the same trap! 

In this article, we’ll expose these prevalent financial slip-ups, examine real-life scenarios, and learn how to change course for a more prosperous and thriving future. 

Believe me, you don’t want to overlook this invaluable information – it may just hold the key to unlocking your business’s full potential!

Mistake #1: Mixing Personal and Business Expenses

Imagine this: John, a talented graphic designer, is out buying office supplies when he realises he needs to grab some groceries for his family. Without giving it much thought, he uses his business debit card to pay for everything. At first, it seems harmless, but as time goes by, this habit leads to a disorganised and confusing financial situation for his business.

Why it’s an issue: By using his business debit card for personal expenses, John is mixing his personal and business finances. This makes it challenging for him to accurately track his company’s financial health and can lead to potential errors in tax filing. Furthermore, as his personal and business transactions become increasingly entangled, John might face difficulties obtaining credit or loans for his business due to the unclear financial records. To avoid these complications, John should separate his personal and business expenses by transferring money from his business account to his personal one for personal spending.

Mistake #2: Claiming GST on International Transactions

Picture this: Susan, a boutique owner, sources unique clothing from an international supplier to stock her store. In the excitement of finding the perfect pieces for her customers, she accidentally claims GST on the international transaction. Thankfully, Susan uses accounting software like Xero, which can help her identify and correct the transaction – but she needs to act quickly to avoid any inaccurate GST adjustments.

Why it’s an issue: By mistakenly claiming GST on international transactions, Susan risks facing fines and penalties for her business. Additionally, her financial records become distorted, making it harder for her to assess her boutique’s true financial position. To prevent these complications, Susan should ensure accurate GST reporting on all transactions, especially those involving international suppliers, to maintain compliance and keep her financial statements in order.

Mistake #3: Not Monitoring Your Turnover and Drawings

Imagine this: Sarah, a successful event planner, is experiencing an increase in turnover as her business grows. She assumes that more cash flow means she can afford to take larger personal withdrawals from the business. However, she fails to monitor the balance between her turnover and drawings, resulting in an overdrawn current account.

Why it’s damaging: Neglecting to keep an eye on turnover and drawings can lead to serious cash flow problems for Sarah’s business. As she increases her personal withdrawals, she depletes the working capital needed to pay bills, meet payroll obligations, or invest in growth opportunities. To avoid these issues, Sarah should carefully monitor her turnover and drawings, ensuring a healthy balance between them.

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Mistake #4: Borrowing Against Your Family Home

Picture this: Mike, a restaurant owner, needs to purchase new kitchen equipment for his expanding business. He considers borrowing more money against his mortgage to fund the purchase. However, this decision puts his family home at risk in case his business encounters financial difficulties.

Why it’s damaging: By using his family home as collateral for the business loan, Mike exposes his personal assets to risk if his restaurant fails. If he’s unable to repay the loan, he could lose his home. Instead, Mike should finance fixed assets against the asset itself and cover the increased interest. This approach protects his personal assets and ensures that if his business faces challenges, the risk is primarily associated with the asset rather than his family home.

Mistake #5: Not Knowing Your Breakeven Point

Imagine this: Laura, who runs a successful online store, has never taken the time to calculate her breakeven point. As a result, she struggles to make informed decisions about pricing and expenses, which hampers her ability to grow her business.

Why it’s damaging: Without knowing her breakeven point, Laura may set prices too high or too low, offer unsustainable discounts, or fail to implement cost-cutting measures effectively. This lack of knowledge can lead to financial strain and missed growth opportunities. By calculating her breakeven point, Laura will better understand the financial impact of various business decisions, enabling her to make smarter choices.

Mistake #6: Not Regularly Reviewing Your Pricing

Picture this: David, a gym owner, hasn’t updated his membership pricing in years. As his costs have increased over time, he’s unknowingly eroding his profits and missing out on opportunities to capitalise on changes in the market or customer demand.

Why it’s damaging: Stagnant pricing can eat away at David’s profits as costs continue to rise. Additionally, by not regularly reviewing his pricing, he may fail to stay competitive or cover his costs, ultimately hurting his bottom line. To maximise profitability, David should periodically test different price points, monitor customer reactions, and adjust his pricing accordingly to find the sweet spot that benefits both his business and his customers.

Are hidden financial mistakes silently eating away at your SME’s profits? Don’t let these errors unknowingly hinder your business’s potential for success. Discover the most common financial pitfalls in our latest article and learn how to turn things around for increased profitability.

From mixing personal and business expenses to incorrect GST claims on international transactions, we’ll unveil these mistakes using real-life examples. You’ll gain valuable insights into monitoring turnover and drawings, avoiding risks with borrowing against your family home, understanding your breakeven point, and regularly reviewing pricing strategies.

Don’t overlook this invaluable information—it could hold the key to unlocking your business’s full potential! Take action today by reading our article and implementing effective financial management practices. Get ready to eliminate financial mistakes and drive your business towards greater profits!

Do you know what can make or break your business? If you want to learn more about the power trio, you better check this next article!

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