As a small business owner, you aim to run your business efficiently.

You focus on your business’s finances and make sure they’re in order. But cash flow issues can quickly spiral out of control.

And in the worst-case scenario, it can close down your business. In fact, 29% of businesses fail because they run out of money, according to a survey by CBInsights.

Despite your best intentions to keep your business running perfectly, you could be making serious mistakes with your business right now.

Here are five critical mistakes you could be making – and how you can address them.

1. Not creating a clear budget

If you don’t have a budget for your business, you likely don’t know how much money is going into your business or where it’s going. This creates cash flow problems for your business. You won’t know if you have enough money on hand to make a purchase. Or worse, you may not be able to cover an unexpected business expense.

Your business’s budget should be clear and easy to understand. Whether you keep a monthly or quarterly budget, you should be able to quickly see how much money your business has and any upcoming expenses.

The U.S. Small Business Administration provides a multi-month budget template you can use for your small business. The Federal Trade Commission also has a monthly budget worksheet you can use. Fill out the worksheet using the current month’s information. The worksheet can help you develop a budget for the following month.

Here are a few tips to help you create a clear budget:

• Figure out what kind of budget you want to create. Monthly? Quarterly? Yearly?
• Look back at your expenses to see how much you’re regularly paying for bills. This can include utilities, subscriptions, vendor fees, insurance premiums, etc.
• Do the same for your business’s income. Look at the sales your business generated and other forms of income.
• When you have this information, you can create your budget. If you use computer software, like Microsoft Excel, you can record the cash flow for each category. For example, your budget may include a line for sales, utilities, payroll and vendor payments.

When you create your budget, make sure you can quickly look at it and know how much money you either have on hand or need to have for upcoming bills. For example, if you have a monthly budget, you should be able to see how much money should be earmarked for utilities and other reoccurring expenses.

One of the most important parts of keeping a budget for your business is ensuring its accuracy. Whether you create a monthly, quarterly or yearly budget, take the time to review it. Regularly updating your budget means you’ll have an accurate number to use.

For example, you may choose to update your budget at the end of each week. When you do this, you can update any bills that were paid and how much money your business received from sales.

2. Not separating personal and business bank accounts

When you first started your business, did you open a business bank account? If not, it’s probably a good time to look into doing that. Separating your business funds from your personal funds can make your life easier – especially when it comes to taxes.

Keeping track of your business’s cash flow is important. But when your business’s money is mixed in with your personal funds, it can be difficult to do that. You may also mistakenly spend some of your business money for personal things – and vice versa. This is something you obviously want to avoid.

When it comes to taxes, you have to report your business’s income and expenses for the year. If your business and personal accounts are mixed together, this can be difficult to do. You may have to go back through your bank statements and figure out which transactions were for the business.

Save yourself the hassle and time. Open a bank account for your business. You’ll need some documentation, which can include the business name, owners or partners and tax ID numbers.

3. Not thinking about debt correctly

It’s typically smart to avoid taking on debt with your business. But debt can help your business. How? It comes down to thinking about debt in a different way.

You can take on some debt to help your business expand or grow. For example, if your business is doing well, you may need new equipment to keep up with customer demand. In this situation, you may take out a business loan to purchase the equipment. Or let’s say you want to expand your business because you’re outgrowing your current space. You may take out a loan to get more space.

In either situation, your business is taking on debt. Whether you’re using a credit card, tapping into a line of credit, or taking out a business loan, you’re taking on some debt. Sure, you’ll have to make some monthly payments to pay off the debt, but in the meantime, you invested in your business. If you’re truly at the right place to invest in equipment or expand your business, but can’t use your business’s money, look into taking out a loan. You can speak with a financial advisor about your options.

With that said, don’t go crazy with debt. The last thing you want to do is to borrow too much and put yourself in a deep hole that can be hard to climb out of.

4. Not saving to pay taxes

Businesses should be saving money regularly to be able to pay any tax bills. Whether it’s monthly, quarterly, or annually, having enough cash saved up and on hand can help businesses make these tax payments.

Here’s a quick rundown of the types of taxes your business will probably need to pay, and what you can do to prepare so they don’t catch you by surprise:

• Payroll taxes. If you’re taking a salary from your business then you’ll be withholding federal, state and local taxes from your paycheck. You’re also going to withhold and pay social security, Medicare and unemployment taxes. Payroll taxes are incredibly complicated. That’s why it’s recommended you hire a payroll tax service to handle your deductions.
• Income taxes. Hopefully, your business is earning an income after all your expenses – including your salary. That income is taxable. You will need to be paying in quarterly estimated taxes to the Federal government on this income. You may also need to do the same for your state. A good rule of thumb is to save 30-40% of whatever your business makes in order to cover your state and federal taxes.
• Self-employment tax. If you work for yourself, you’ll have to pay a self-employment tax. This is essentially Social Security and Medicare tax. If your net earnings are more than $400, you’ll have to pay this tax. If you work for a church or church organization that is exempt from Social Security and Medicare taxes but earn more than $108.28 in wages from the group, you’ll have to pay the tax. This self-employment tax calculator can help you get an idea as to what you will need to pay for your Social Security and Medicare.

If you decide to pay taxes throughout the year, you’ll likely be paying estimated taxes. How do you know how much to estimate? You can use the IRS estimated tax calculation worksheet. You can also use tax software to calculate this amount for you. If you have an accountant, it’s likely they can also help you with this.

You can find more information on the taxes you’re responsible for on the IRS’ website. You can also get more information about the different taxes from the Small Business Administration.

5. Not saving for emergencies

Having an emergency fund – or a rainy day fund – for your business is a good idea. Unexpected expenses can come up at any time. A piece of equipment can break down and you need to pay for repairs or a replacement. Or your business is sent a bill that is more expensive than you initially thought. Having extra funds on hand to cover these types of expenses can keep your business afloat and prevent you from stressing.

So what do you do if you don’t have an emergency fund? Don’t panic. It’s never too late to get started. You’ll first need to set a goal amount to save up for your rainy day fund. The specific amount will vary from business to business, but a good rule of thumb to aim for is at least three months of expenses.

When you created your business’s budget, you looked at the expenses for each month— use this same number. Next, you can speak with your bank about opening a savings account. Some savings accounts, like certificates of deposit or money markets, put your money away for a certain period of time and it collects interest.

You’ve figured out how much money you need to save and you have a savings account for your rainy day fund. So how do you start building up the fund from $0? Deposit some money each month into your rainy day fund. It doesn’t have to be much — any bit helps. You can also look into adjusting how much money is withheld for taxes. You can use the withholding calculator on the IRS website to help you with this.

How are you doing with your business’s finances?

Making mistakes with your business’s finances and cash flow can be devastating. Whether you’re making one of these mistakes or all of them, it’s not too late to reverse course. Find out which financial mistake you’re making and take the steps to correct it. It’ll give you peace of mind and can put your business back on track to succeed.

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