The Top 5 Money Mistakes Small Business Owners Make (and How to Avoid Them)

July 15, 2025

Everyone reading this has encountered a small business, and if you are reading this and thinking “I hAvEn’T” then you are in denial or you live under a rock. Small businesses are an integral part of what makes a local economy thrive. Small businesses are so important and well known, there’s even a day after Black Friday called Small Business Saturday, where everyone is encouraged to shop small for some, if not all, of their holiday purchases. These businesses are not just good for your local economy but for the community, they encourage people to come together and patronize a shop because they know the revenue is funding someone’s livelihood within their community. As commercial as it sounds, shopping or patronizing a small business in your area means that you are contributing to the family's self paid health care, their mortgage payment, their kids (or pets) food and shelter, and most importantly, their passion.

Now, I’m also sure that you’ve gone into a small business, loved it, and decided you were going to continue to be a patron of it, only to find out six months later that they had to shut down? Or downsize? And it breaks your heart because you say the words, “Oh no, what happened? I loved that place!” Well… What happened? I’m here to give you 5 mistakes that those small businesses could have made, and how they could have avoided them. I am aware that there are plenty more than 5 reasons for why a business could fail, but I don’t feel like making you guys read a 50 page dissertation on all the reasons so I’m giving you the top 5 (in my educated and experienced opinion).

Number 1: Mixing Business and Personal Finances

Imagine trying to figure out how much you’ve earned from your bakery this month, but your bank statement is littered with grocery runs, coffee shop stops, and that late-night Amazon haul (don’t worry, we’ve all been there). This is one of the top mistakes small business owners make—blending personal and business expenses into one messy money smoothie.

Why it’s a problem:

It becomes a nightmare come tax season, it muddies your understanding of profitability, and it can even put your legal protections at risk if you're an LLC or corporation.

How to avoid it:

Open a separate business bank account. Use a dedicated business credit or debit card. Bonus tip: use cloud-based accounting software like QuickBooks, Xero, or Wave to track income and expenses in real time. Future you (and your accountant) will thank you.

Number 2: Underpricing Products or Services

Too many small business owners fall into the trap of thinking they need to be the “affordable” option. But guess what? Your prices are not just numbers; they are messages. Pricing too low can scream “inexperienced,” “low quality,” or “unsustainable.”

Why it’s a problem:

If your prices don’t cover your costs (including your time), you’re basically paying people to do business with you. That’s not generosity, that’s financial self-sabotage.

How to avoid it:

Know your numbers! Factor in material costs, labor, overhead, and a healthy profit margin. Research your market and charge what you’re worth. Confidence is a currency too.

Number 3: Ignoring Cash Flow

You could be booking clients left and right or selling out your handmade goods every weekend—but if the money isn’t hitting your account in time to pay bills or payroll, you’re in trouble.

Why it’s a problem:

Positive cash flow is the heartbeat of your business. Without it, you’ll struggle to invest, pay expenses, or even keep the lights on.

How to avoid it:

Use a cash flow forecast—yes, even a simple spreadsheet works. Set clear payment terms (and stick to them). If you invoice, follow up like a boss. Don’t be afraid to charge late fees. You’re not being rude; you’re being responsible.

Number 4: Not Having a Budget (or Ignoring It)

Ah yes, the ol’ “we’ll figure it out as we go” approach. Spoiler alert: winging it is not a financial strategy. Operating without a budget is like driving with your eyes closed—sure, you might make it, but you probably won’t like where you end up.

Why it’s a problem:

Without a budget, it’s too easy to overspend on non-essentials and underspend on growth opportunities.

How to avoid it:

Create a simple monthly budget that accounts for fixed and variable expenses, income targets, and savings goals. Review it often and adjust as needed. Pro tip: treat your budget like a GPS—it won’t stop you from taking detours, but it will always point you in the right direction.

Number 5: Skipping Professional Help

Look, you’re great at what you do—whether that’s baking sourdough, fixing plumbing, or designing websites. But unless you moonlight as a CPA or tax attorney, doing everything yourself can cost more than it saves.

Why it’s a problem:

Trying to DIY your finances can lead to missed deductions, IRS letters, inaccurate records, or worse—bad decisions based on bad data.

How to avoid it:

Outsource what you don’t know. Hire a bookkeeper, tax pro, or accountant—even if it’s just for quarterly check-ins. Think of it as an investment, not an expense. A good advisor doesn’t just count your beans—they help you grow more. At Salt & Ledger, we believe in curating the best plan of action that doesn’t break the bank and gives you the comfort of focusing on what you're most passionate about, the heart of your business.

Conclusion:

Running a small business is no small feat. You’re juggling marketing, sales, customer service, product development—and about 42 other roles. But managing your money well doesn’t have to be overwhelming. With a few proactive steps and the right tools (and maybe a friendly accountant in your corner like Salt & Ledger), you can avoid these common mistakes and set your business up for long-term success.

So, whether you’re just getting started or years in the game, take this as your sign to check in with your numbers. You’ve got dreams to fund—and they deserve the right financial foundation.