It’s common for people to give us advice on various topics without asking, everything from how to slim down or clean up wine stains to managing money. However, not everyone provides sound advice when it comes to financial matters. Having a small business can suddenly lead to more unsolicited advice from those who wish to bestow their wisdom onto you. It can be hard to sort out the conflicting advice from the good and the bad, as there are so many voices out there telling you what to do. Unfortunately, some financial myths are so prevalent that they continue to be spread by professionals who should know better. Here are five financial myths you’ve probably heard about small businesses and the truth behind them.
#1. More spending equals more success
One of the most common financial myths that small businesses often hear is that they must spend money to make money. However, this may not be the best way to achieve a positive return on investment. For instance, many businesses tend to lose money due to their overhead costs, which they think are necessary to maintain their operations. One of the most important factors that businesses must consider when it comes to investing money is the return on their investment. Having a good understanding of the exact cost of doing business is very important to ensure that you are not just spending blindly.
#2 Getting a loan with no money down
One of the most common financial myths that small businesses often hear is that they can get a loan with no money down. There are various websites that claim that they can get free money for their businesses, such as government grants and low-interest loans. However, most lenders require that a small business owner have at least some equity or money in their bank account to cover the loan.
#3 You’re less likely to get audited as a small business
The IRS is less likely to audit small businesses because they tend to fly under the agency’s radar. Variations of the “I’m not a big enough fish” myth are prevalent in the small business world, many believing their chances of an audit are slim due to the small size of the company. It is your best bet to always assume that an audit is coming, as nobody can predict who will be audited. Having the proper books and records is very important for a small business, as it can help ensure that the company is running smoothly and efficiently. It can also prevent you from missing out on various cash flow opportunities.
#4. Not needing to prepare a budget
While being good with money is important, having a budget is also very important for a small business as it can help ensure that the company is running smoothly and efficiently. A budget is a detailed analysis of how the company is expected to spend money in the future and now. It can help prevent overspending and ensure that the company is not wasting any money. A budget is also used to plan for the future growth of your business. Having a budget can be very important for a small business as it can help ensure that the company is running smoothly and efficiently. One can use software like Quickbooks to automate the process of keeping track of expenses.
#5 You can cut corners by doing your own bookkeeping
Another common financial myth that small business owners often make is that they can do their own bookkeeping. However, this doesn’t mean that they should. It is important to remember that doing so will only waste your time and energy, as it will not allow you to focus on the important tasks at hand. Even if you are a good bookkeeper, knowing how to use your resources properly is essential. It is also important to note that proper bookkeeping requires an in-depth understanding of the various financial instruments and cash flow analyses that are used by a small business.