by Lori Johnston

IT’S TIME FOR A CLEAN SLATE. AS 2015 BEGINS, remaining ignorant of your business’ finances or making the same bad fiscal decisions can keep you from reaching your goals before January ends. Instead, avoid these four common small business money mistakes.

LETTING UNBRIDLED OPTIMISM RULE.

Entrepreneurs often have financial projections wrong from the beginning, which can be costly when it’s time to pay loans or other bills. “Revenue projections are way too optimistic. Guys think they’re going to open the door and be running third-year volume on Day One when nobody ever heard of you,” says Bob Bertelsbeck, a former CPA who worked in management for NCR Corp., a $6 billion technology company.

Bertelsbeck now assists business owners through the Manasota chapter of SCORE, which provides free mentoring, business advice and workshops to new and existing businesses. Often he finds that expense projections are too conservative and don’t allow for surprises.

“Things always happen slower and cost more money than you’ve thought,” he says. “The whole downside of that is that it will cause you to underestimate your needs for cash.” He suggests adding 20 percent to initial expense projections.

NOT FACTORING IN “OPPORTUNITY COST.”

What’s called “opportunity cost” is essentially an opportunity that was missed while you are pursuing another action.

For example, you will likely have to wait for a bank to review a loan application, which could be a couple of weeks to a month. If approved, it could take that long, or longer, to fund the loan. The process may require you to take time out of serving customers or making products to provide documents and materials that support your financial projections, or to pay an accountant or bookkeeper to handle these inquiries from the bank. You may be unable to serve a customer or to pursue new business during the time spent going through the loan process, or you will pay greater expenses to have documents prepared by someone else. Always anticipate that projects will take longer than you think, and factor in more time and money to compensate.

“If you are thinking about starting a business, definitely meet with a CPA who specializes in businesses and work with an attorney.”

 SKIMPING ON EXPERT HELP.

The idea of paying professionals to help with financial and legal decisions may make a business owner, especially one just getting started, cringe. But it’s consistently the one piece of advice that successful business owners recommend in order to comply with tax laws and to meet any government requirements, depending on your industry.

“If you are thinking about starting a business, definitely meet with a CPA who specializes in businesses and work with an attorney. That’s your team,” says Christine Jennings, founder, and former CEO and president of Sarasota Bank. “You can get yourself in trouble fast if you don’t have them. If you get into the trap of finding things out too late, it can cost you much more money and stress.”

BEING UNCLEAR ABOUT YOUR LOAN INTEREST RATE AND TERMS.

If a bank is willing to give you a loan, congrats. But weigh the pros and cons of the type of loan. For example, a fixed-rate loan may cost more, but can offer a level of security over a variable rate loan. “The trade-off is you have no uncertainty as to the future financing costs,” Bertelsbeck says.

Also, make sure you are correctly calculating your interest rate and the real impact on monthly and weekly payments. Some businesses have lines of credit with local banks that they fail to pay down to zero annually, he says. When this happens, that line of credit, meant to be for the short term, essentially serves as a long-term financing vehicle.

Finally, recognize extra costs such as origination fees that lenders charge, as well as potential application, administration, due diligence, contract and processing fees. They may be rolled into the cost of the loan, which makes them easy to overlook. ■