The short answer
Discover common financial mistakes small business owners make, including underpricing, mixing personal expenses, and poor systems setup.
The most common financial mistakes small business owners make are underpricing, mixing personal and business money, not setting aside tax, and running the business without up-to-date numbers. Each one is fixable: price for profit, separate your accounts, put GST and tax aside as you earn, and keep your books current in Xero.
Mistake 1: Underpricing
Low prices win early clients, but they squeeze your margin and make future price rises harder. Your price needs to cover direct costs, overheads, your own wage and a profit margin. If you are busy but never seem to have cash, underpricing is often the cause.
Mistake 2: Mixing personal and business money
Paying personal bills from the business account (or business costs from your personal card) makes it hard to see real profit, creates bookkeeping clean-up and can cause tax problems, especially for companies. Use separate accounts and cards from day one.
Mistake 3: Spending the tax money
GST, PAYG instalments and super are collected before they are due. Without a plan, that money gets spent and the BAS becomes a crisis. Move GST and tax into separate accounts every time you’re paid.
Mistake 4: Flying blind
Many owners only see their numbers once a year at tax time. By then it is too late to fix a loss-making service or a cash flow problem. Monthly profit and loss and cash flow reports turn guesses into decisions.
Mistake 5: Not planning for growth
Hiring, leasing a bigger space or buying equipment all change cash flow. A simple 12-month forecast shows whether you can afford the next step before you commit.
A typical Melbourne scenario
Sophie runs a cleaning business in Box Hill. She was busy every week but always short of cash. Her accountant found three issues: her prices hadn’t moved in three years, personal expenses were running through the business card, and GST was being spent before each BAS. She lifted prices 12%, split her accounts and started a GST account. Within two quarters she paid her BAS on time and had a cash buffer for the first time.
How do you avoid these mistakes?
Review your pricing at least once a year.
Keep separate business bank accounts and cards.
Set up tax buckets for GST, income tax and super.
Use Xero and reconcile it weekly or monthly.
Meet your accountant quarterly, not just at tax time.
Key takeaways
Underpricing, mixed accounts and spent tax money are the big three.
Up-to-date numbers let you fix problems early.
Simple systems from day one prevent most of these mistakes.
General information only. Talk to your accountant about your circumstances.
Read why founders underprice and how to fix it, see our small business bookkeeping, cash flow management and small business advisors services.
Oz calls accounting "the great art", and his clients would agree. A CPA member and Xero specialist, he joined Elephant to provide a more holistic service that covers every base of building wealth. He believes long-term relationships are the only way to get clients real results. When he's not at his desk, he's at the gym, on his bike, or fishing - ideally all three.
