Mark Hauser Discusses 5 Small Business Financial Pitfalls (and Offers Tips for Resolving Them)

Operating a small business requires dedication, resourcefulness, and good old-fashioned hard work. Ideally, entrepreneurs should also possess next-level multi-tasking skills. A highly capable support team, and advisers with needed expertise, help to position the business owner for success.

That said, private equity expert Mark Hauser states that the entrepreneur should also keep the business’ financial house in order. He discusses five financial pitfalls that could present obstacles to successful operations and growth. Mark Hauser also offers strategies for resolving each situation.

Lack of Sufficient Working Capital

A regular flow of financial capital enables a company to satisfy its ongoing financial obligations. A well-capitalized business is also able to purchase new equipment, undertake a market expansion, and hire additional employees. Finally, available capital can serve as a safety net.

Private equity expert Mark Hauser says the lack of sufficient capital can substantially impact a company’s ability to fund (and expand) its operations. If the situation doesn’t improve, the company can find itself in a downward spiral.

Strategies to Increase Working Capital

To obtain more capital resources, the business owner should first educate themselves on business financial operations. Next, they should consider five potential funding sources:

- Personal Savings and Family/Friends

- Venture Capital Funding

- Private Equity Funding

- Conventional Bank Loan

- Small Business Administration-Backed Loan

Strategies for Better Loan or Investment Outcomes

To boost the chances of additional cash inflow, private equity principal Mark Hauser details three integrated strategies. First, he recommends that business owners have a well-constructed written business plan (and ideally an investor pitch deck). Next, entrepreneurs should increase their personal credit score prior to loan applications. Finally, business owners should implement an automated financial management system.

No Structured Operating Budget

Business owners without an operating budget may find it difficult to keep the bills paid. The lack of income, expenses, and cash flow tracking means the entrepreneur doesn’t know whether there’s enough money to handle incoming obligations.

Private equity principal Mark Hauser emphasizes that a non-budgeted business could be headed for financial disaster. Bounced checks, and the inability to meet payroll, are two potential impacts.

Adopting a Budgetary Framework

Fortunately, companies that adopt (and adhere to) a budget will receive two concrete benefits. First, a regularly updated budget serves as the basis for well-informed business decisions. The budget also provides a snapshot of the company’s financial status at a specific point in time.

A small business budget integrates five components:

- Fixed Expenses

- Variable Expenses

- One-Time Expenses

- Cash Flow Statement

- Profit After All Expenses

Finally, factoring in some savings provides a cushion against unexpected events. Depending on the industry and/or company, other line items may also be appropriate.

Inadequate Financial Reporting

A small business is required to report financial transactions to local, state, and federal entities (including the Internal Revenue Service). The firm’s bookkeeper or accounting department typically gathers the data and makes timely reports. Other entrepreneurs utilize an automated accounting and reporting system.

Either way, accurate documentation and reporting are key. Inaccurate financial data can affect the business’ cash flow along with related financial reports and tax forms. Company auditors will also note the business’ inaccurate financial reporting.

Potential Self-Reporting Fallout

A cash-crunched small business owner may decide to handle their own reporting rather than hire a professional. Private equity expert Mark Hauser advises against this short-sighted strategy. Filing of erroneous tax form data, such as inaccurate revenue figures, could lead to fines, interest assessment, and potential jail time.

Enabling Better Financial Reporting

As private equity expert Mark Hauser notes, an automated financial reporting system quickly generates accurate financial reports. This sophisticated software performs financial modeling and analysis relative to multiple business functions. The resultant data offers corporate performance insights that foster more informed decisions.

Commingling of Business and Personal Funds

A substantial percentage of small business owners mix their business and personal funds. Perhaps a cash-strapped entrepreneur regularly dips into their savings to fund the business’ operations. Alternatively, an overwhelmed business owner may rationalize the lack of financial boundaries. In their view, they lack the time to maintain two separate checking accounts.

Either way, private equity expert Mark Hauser strongly advises against this practice. When a business owner mixes (or commingles) business and personal financial resources, it’s difficult to accurately track the company’s cash flow. Internal and/or government auditors will also look unfavorably upon this action.

Separate Business and Personal Expenditures

Resolving this problem is simple. The entrepreneur should establish a business checking account for company-related deposits and withdrawals. This includes the business owner’s salary.

Many business checking accounts include a business credit card. Designed for company-related transactions, this card enables better cash flow monitoring. Concurrently, the business owner should stop making company purchases with their personal credit card.

Tax Compliance Mistakes

Many small business owners cite tax compliance as a major concern. A majority of these business owners pay too much in federal taxes. Other entrepreneurs underpay and soon find themselves facing penalties and/or interest on unpaid balances.

Surprisingly, tax compliance costs are frequently a more troublesome issue than the actual tax payments. Small businesses often don’t have a tax payment functionality in place. Therefore, they must pay IRS tax penalties for missed payments or tax underpayments.

Simplifying the Tax Payment Process

Private equity principal Mark Hauser offers multiple financial documentation and tax preparation tips. First, entrepreneurs should regularly carve out time to organize their books. By categorizing transactions and related documentation, and keeping up with bookkeeping entries, they’ll be better prepared for tax filings. An onsite or virtual bookkeeping service can take over these tasks. An accounting software program may also be useful.

Next, reconciling and balancing the company’s books is key. Gathering credit card and bank statements, along with inventory records, is also important. Meeting filing requirements for employees and/or contractors is another essential task. Overall, obtaining needed documentation for tax filings will help streamline the quarterly and/or annual process.

Finally, the business owner should file their federal, state, and/or local taxes by the respective deadlines. If possible, Mark Hauser recommends that the entrepreneur obtain assistance from a Certified Public Accountant. This highly skilled professional is familiar with applicable tax laws and business tax issues. A third-party tax preparer could be a viable option. Self-preparation of business taxes isn’t encouraged.

Sustained Due Diligence is Required

Resolving financial mistakes is an ongoing process. Private equity principal Mark Hauser says hiring a business bookkeeper can enable better records documentation and tax support. A financial software program can provide extensive visibility while often syncing with the CPA’s database. However, he emphasizes that the business owner is ultimately responsible for their company’s financial well-being.

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