We often get asked about things that business owners should do to be successful and while we love being positive, we also wanted to let you in on some major business red flags. So according to our POV (aka according to the financial side of business), here are a few things that business owners should NOT do:

1. Commingle business and personal finances

2. Ignore their bookkeeping

3. Equate sales to success

We repeat, DO. NOT. DO. THESE. THINGS.

Why not? Glad you asked…

Commingling business and personal finances

This means there’s no separation between your business and personal income and expenses. All of your business transactions go through your personal checking account or credit card because you don’t have separate accounts for your business. There’s a lot of reasons why this is a bad idea.

First, it makes bookkeeping a nightmare. Each month, you’ll have to go through your personal bank statements and figure out which transactions were for your business. This takes so much time, and there’s a large chance you’ll make a few mistakes (or many). You’ll likely forget that that Costco trip was to buy snacks for your office and just assume it was to stock up your pantry. Or you’ll overlook the Olive Garden expense which was a business dinner, not a GNO. See what we’re getting at?

Commingling expenses also means it’s harder to see where the bleeding (or major success) is coming from. We once had a client who was an avid commingler (is that even a word? Who knows. Let’s just roll with it though). She came to us complaining about her business. No matter how hard she worked, or how much she sold, she had barely enough money to scrape by each month. She was ready to have a pretty looking savings account, enough money to splurge on a vacation, and wiggle room in her budget so she could take time off when needed. After working with our team to do her bookkeeping, she learned that her business wasn’t the problem, her personal spending was. All this time, she had been blaming her business, when in reality, it was her spending habits. Anytime she saw money in her bank account, she’d spend it. She bought a new house, new couches, redid her backyard, took her family on a last minute vacation, went on a major shopping spree, etc. It wasn’t that her business wasn’t making money – it was! Her big goal was to pay herself $15K each month and she was doing exactly that! But because she commingled her money and never isolated her business from her personal finances, she never realized just how successful her business was nor did she realize how much she was spending month after month on personal expenses she never budgeted for. Now that she has separate business and personal bank accounts, it’s way more obvious to her just how much money her business is making and how much she can spend without breaking the bank.

Last but not least, did you know it’s actually against the terms of an LLC to commingle finances? So if you’re currently an LLC or if you plan to be an LLC anytime soon, you need to keep your finances separate for legal purposes. If you don’t, your LLC is essentially invalid and there’s really no point in having it anyway. Not fun.

Ignoring your bookkeeping

Bookkeeping tells you what’s actually going on with your business. How much did you earn last month? How much did you spend? Is the business profitable? How does this month compare to last month, or to last year? Did you make any errors? Were you billed correctly? Are you prepared for tax season? Those questions can only be answered if your bookkeeping is up to date. And let us hop on our soapbox real quick to tell you that every financial business decision you make can and should be explained by your books. Pricing, income streams, investments, hiring, etc. will feel a lot more secure when you know your numbers are backing you up.

Not to mention the client we talked about above. If only she had done her bookkeeping, then maybe she wouldn’t have developed such a strained relationship with her business because she would have realized just how good her business was performing. Bookkeeping gives you insights into your business you otherwise wouldn’t be able to recognize.

Equate sales to success

Let us guess, you’ve seen someone on Insta bragging about their sales this week, haven’t you? Because we most definitely have. And while we LOVE seeing our peeps successful, we also like the truth. And here’s our big truth bomb: sales are a vanity metric. It makes you feel good, but it doesn’t necessarily tell the truth of your business. Earning $500,000 in sales doesn’t actually mean your business is successful. The number you should care about is net income. That’s your sales minus all of your expenses, and it tells you how much you actually have at the end of the month to pay yourself or reinvest in the business.

For example, if you earned $500,000 in sales but you had $600,000 in expenses, then you actually had a net loss of -$100,000. On the other hand, if you had $50,000 in sales and only $20,000 in expenses, then you would have a net profit of $30,000. You see how in this example the person with the lower revenue number actually had significantly better profits? That’s why focusing on sales over profits is a big no no. If you’re going to look at money as a measure of success, at least be profit-minded.

Then again, your success has nothing to do with how much money you make. What about all the other things that can’t be measured with money?? How fulfilled are you? How many hours did you work? Are you doing something that you’re passionate about? Is your work/life balance what you’ve always wanted? Can you see growth in yourself and your business? 

If you’re looking for more ideas of what to do and what not to do in your business, check out some of our other blog posts: https://pattonaccounting.net/blog/#blog. You can also find us on IG sharing helpful tips for small businesses who don’t believe in playing small.