4 FINANCIAL MISTAKES BUSINESSES MAKE

Posted on August 28, 2025 by John Bulman MBA, One of Thousands of Business Coaches on Noomii.

4 FINANCIAL MISTAKES BUSINESSES MAKE

When your business is out of cash, you are out of business. That is an aphorism business owners should take to heart. Having insufficient working capital, failing to manage cash flow or predict your future cash situation with a cash flow budget, not seeking credit when you do not need it so cash will be available when you do need it, and overspending are all management errors and financial mistakes that could mean the death penalty for your business.

Insufficient Cash (working capital)

Not having adequate cash on hand could develop into a situation where you cannot pay your bills, suppliers, and worse, your employees. Manage you cash like it is the important and scarce resource it is so you can sleep at night and stay in business. Have credit available for times when cash is slim and use a cash flow budgeting process to project what you cash situation will be in the future. More on these below.

Failing to Create a Cash Flow Budgeting Process

Profitable businesses can run short of cash and go bankrupt when they cannot pay their bills or employees. Often these are businesses that are growing quickly and experience a phenomenon called “growing broke,” where the expenses of expansion precede the cash collection from the expansion, absorbing all available cash. Suffice it to say that the time to find out you are not going to make payroll on Friday is not Thursday. It is 3 months before the possibility of that event might occur. Having the information to see what is coming, gives you time to react and avoid the unpleasant surprise.

The way you avoid this kind of problem is with a cash flow forecasting and budgeting system. Specifically, you use a spreadsheet or computer program to project out the timing and amounts of cash inflows and outflows. For each time period in the future that you measure, there should be a beginning balance, cash inflows/outflows and ending balance. The ending balances should tell you what your cash situation will be at the end of each period. I promise you, if you use this kind of system, your business will run smoother, and you will sleep better.

Not Seeking Credit

There is an old joke that when you need money, banks will not lend it to you. That is true, at least in part. Banks will not lend you money when your business is starved for cash and looks unstable. That is to say, when you need it most. The answer to this problem is to obtain credit when you do not need it. Ideally a Line of Credit that you never have to use but is already available to you if you do need it. Too many business owners say that they do not need credit right now and do not apply when they qualify for it. Then they need the money and cannot qualify. Get access to as much capital as you can, so you can prevent serious cash flow issues.

Overspending

You need to spend money to operate your business. That is a given. But how much you spend and on what is not a given. Where businesses typically overspend is on employees, travel and entertainment, and marketing.

Make sure you have only the number of employees and contractors you need to operate your business. Consider releasing under utilized employees. They are costing you money for extremely limited benefit. Also be very wary about having friends and family on the payroll. Very often they can cause interpersonal issues and not pull their weight. Again, the possibility of expense with limited benefit. Employees and contractors that are not fully utilized are a cash drain and over time can cause cash flow problems.

It is also easy to charge a lot of personal items to your business. Especially meals, drinks, and golf green fees, to name a few. Again, what is the purpose of these expenses. It might seem like a good idea to charge these items to your business with the expectation that Uncle Sam will foot part of the bill, but these are still cash outflows that over time can cause problems. Just because you intend to charge these items as expenses on your taxes does not mean they are free. And the IRS might investigate your business one day and would be helpful to have a justifiable business reason for these expenses.

I have saved the best for last when it comes to overspending. That is, marketing expenses. I believe in marketing to promote your business. One of my MBA specializations was in marketing. But the definition of marketing is not spending money. It is investing money to promote your business with the expectation of an identifiable return on that investment.

There are many people with all sorts of people with all sorts of ideas on how you should spend money with them to market your business. Most of them are BS. To keep this simple, here is a decision-making process you can use to market your business:

1) Set a specific and measurable marketing objective
2) Set a budget for the marketing program with expected returns
3) Implement the marketing program with consistency and as planned
4) MEASURE the results. Doing this will keep your marketing expenses productive and stop you from wasting money on marketing that does not work.

There are any number of other financial mistakes business owners make, but if you get the preceding 4 under control, you will have significantly reduced the possibility that you will have cash flow issues. Try them and see.

John Bulman, MBA is a business coach and consultant who helps small businesses grow, get profitable, create accountable teams, and operate with systems that work. He has helped over 100 businesses and business owners on a 121 basis. He is also the author of the book, “Profitability Thinking,” available on Amazon. To reach John, email him at bulmanjohn@hotmail.com or visit his website, www.profitabilitythinking.com.