This mistake is the primary barrier against growing your business - even to the point of profitability, but certainly to the point where you could take a vacation day now and again.
I had a hunch about this problem, but just to make sure, I conducted a survey. It was small - 55 entrepreneurs responded - but the data supported what I have seen in dozens of consultations.
The #1 mistake is: Refusing to track their business finances.
A third of my survey respondents did not keep any financial records of their own, but relied on monthly bank statements in the mail to let them know how much money they have and how much they spent. Some of them didn't even know if they could pay their office or personal rent each month until they got the bank statement in the mail.
Even worse, nearly all of these respondents combined their personal and business bank accounts, or made personal purchases (from fast food to Christmas gifts) from their business account with the intention of "paying it back" later.
Because these entrepreneurs aren't keeping any records of their finances, they don't know if there's a discrepancy on the account. Banks do make mistakes, but if they made one on these accounts, no one would ever know.
If you aren't tracking your business finances, you are flying blind. Just tracking your finances - your revenue and spending - will give you a world of insight into your business.
One entrepreneur contacted me and reported that when he looked through six months of his business bank account records, he was shocked to realize that a full 20% of income was spent across many small purchases of personal items, such as coffee shop lattes, flowers for his girlfriend, and convenience store trips. Imagine the difference you could make in your business if you suddenly had 20% more income available to you!
Even if you are a solo entrepreneur, it's essential that you keep your business finances separate from personal spending. You are not your business. If you blur these lines and your business is unable to pay its debts, the courts could find you personally liable because you "pierced the veil," as accountants say, even if you have an LLC or corporation. You'll also end up spending more on accounting costs because your CPA or bookkeeper will have to sort through all your spending before they can balance your books or complete your taxes.
Instead of depositing all income into your personal account or spending personally from your business account, write yourself checks from business to personal. It's best if you can make a salary for yourself with a set amount each month, to help make a budget within your business. However, even if a set amount isn't an option yet, you should still keep the money separate to help lessen the risks.
Once your accounts are distinct, you will be able to better judge what your business can afford so you can take steps towards sustainable growth.