Running a business is exciting, but it comes with its challenges. One of the biggest hurdles is managing finances. If you’re not careful, even a small mistake can turn into a big problem. From mixing personal and business finances to not understanding the real cost of credit, these mistakes can hurt your cash flow and credit score.
In this blog, we’ll walk you through the top 5 business financing mistakes and how to avoid them, so you can keep your landscape business thriving.
5 Business Financing Mistakes & How to Avoid Them
Check out these 5 common business financing mistakes and how to fix them.
1. Mixing Personal and Business Finances
When you first start your business, it might seem easier to use your personal account for business expenses. But this can lead to a lot of confusion and make it difficult to track your business performance. Plus, mixing finances can hurt your credit score if your business faces tough times.
How to Avoid It: Open a separate business account as soon as possible. Use a business credit card for all business-related expenses. This makes bookkeeping easier and keeps your personal credit score safe.
2. Ignoring Cash Flow Management
Cash flow is the lifeblood of your business. If you don’t have a good handle on your cash flow, you might find yourself struggling to pay bills or cover payroll during slow months. This can lead to taking on unnecessary debt just to keep your business running.
How to Avoid It: Regularly review your cash flow statements. Make sure you have enough reserves to cover at least three months of operating expenses. Consider using customer pre-pays or lines of credit to maintain a healthy cash flow.
3. Misunderstanding the Cost of Credit
Credit can be a powerful tool for growing your business, but it comes with costs. Many entrepreneurs focus on the interest rate but forget about fees, penalties, and the long-term impact on cash flow. This can make seemingly affordable credit much more expensive.
How to Avoid It: Before taking on any credit, calculate the total cost, including fees and potential penalties. Tools like CreditKarma can help you monitor your credit score and offer insights into managing your credit wisely.
4. Not Having a Backup Plan
Many businesses run smoothly until they hit a financial bump—like losing a big client or unexpected expenses. Without a backup plan, this can lead to panic borrowing or dipping into personal funds, which can strain your finances even more.
How to Avoid It: Always have a backup plan. This could be a line of credit you don’t use unless necessary or a savings fund to cover unexpected expenses. Having a plan in place gives you peace of mind and keeps your business stable during tough times.
5. Overlooking the Importance of a Good Credit Score
A good credit score can open doors to better financing options and lower interest rates. But if you don’t monitor it, you might end up with a lower score due to missed payments or high credit utilization, making it harder to get financing when you need it most.
How to Avoid It: Regularly check your credit score and report any inaccuracies. Pay your bills on time and keep your credit utilization below 30%. Financing under your FEIN rather than your Social Security number can also help maintain a clean personal credit score.
Final Thoughts
Now you have a clear idea of the top 5 business financing mistakes and how to avoid them.
Your landscape business is unique, and so are your costs. To make sure you’re charging the right prices to stay profitable, download our free pricing worksheet.
Here’s a video that shows you how to use our free pricing worksheet.
It calculates exactly what you need to charge per hour, including labor, overhead, and even drive time, to guarantee a profit at the end of the year.
There’s also an advanced version you can buy- more info here.
