16 Financial Mistakes To AvoidMar 15, 2018
This is your life's dream, to become an entrepreneur. You want to leave your 9-5 and achieve your dreams. You know that the journey, the endless hours and sacrifices will be worth your time because, in the end, you will achieve financial freedom.
But with entrepreneurship comes some risks. Most businesses don't reach the 5-year mark. Why? Because of mistakes that have caused them to fail.
Today I am going to show you the 16 biggest mistakes new entrepreneurs and business owners make and how to avoid them.
Not Doing Research
Before going into business, you have to do your research. Is your product needed in your current market? Do I know who is your ideal audience or client? Who is your competition? Trust me, you do have one.
Make sure to do your research prior to spending a cent on anything else. What is the point to start a business where no one needs your product? Create momentum for your product with your potential clients even prior to spending anything.
Not Having a Business Plan
If you don't create a business plan with early projections and yearly projections, no bank is going to help you open your doors.
Not only that, even if you don't need a bank right now if you don't have a plan, you don't have a direction. A goal without a plan is only a dream.
Not Having A Budget
Do you have some money aside in case things comes up? It always happens, you are going to spend more than what you anticipated. Therefore, always have at least a 10% extra accoladed in your budget.
How about marketing? "If you build it, they will come"...yes, but only if they know about it. Therefore, make sure to create a marketing budget too.
Not Surveying The Location
If you are opening a brick and mortar business, you need to choose your location wisely. Have you ever seen a Taco Bell or Chipotle next to a McDonalds?
The reason they open so close to each other is that they know they will increase the chances to more revenue, even they appear to be competitors.
That is exactly how you need to think about the location of your business. Make sure it is a convenient location and that is an area that attracts your audience and clients. Same thing when it comes to Social Media. Do you know where do your clients hang out the most?
Putting Everything On Credit
It can be very tempting to put everything on credit. But that can take you into a downward spiral failure. Because instead of cash flow, you will have debt instead. Remember, not everything has to be perfect, start small and grow big.
Not Calculating The Costs and Taxes
When you open a business and start making revenue, don't forget that Uncle Sam is going to ask for their fair share too. Every state has different guidelines, depending on the type of business and products. So make sure to take that into consideration when pricing your products and services.
Not Being Clear On Your Price
Talking about pricing. You need to know your worth and value. If you price your products or services too low, you might not make any revenue, and your margins will be too small to survive.
But if you price too high, you might not sell anything. You need to understand your product and your market before setting a price.
Not Paying Yourself First
Do you reinvest everything back into the business? You are going to burn out. Make sure to pay yourself first! Even if it is something small at the beginning, you always should pay yourself first. In the end, the purpose of having a business is so you can enjoy freedom.
No Having Insurance
When I'm talking about insurance, I am talking about two types of insurance.
The first one is Liability insurance, you want to make sure that you are protected in case property damage or even bodily damage.
Do you work from home and clients comes to see you? Your current homeowners or renters insurance will not cover your business activities.
If you have a brick and mortar, you want to protect your equipment as well.
The other type of insurance is Life Insurance in case something happens to you. I know, I know, what could happen? Well, people don't think they need it until they do and it is too late.
Spending All Your Money Outfront
This has a little bit to do with budget and projections. If you spend all your money out front, without recovering it back soon enough, you are going to close your doors.
Avoid this huge mistake. Also, watch out not spending your money on things you don't need.
Not Saving For Emergencies
Every business has ups and downs. Therefore, make sure to separate for emergencies and retirement. You not only want to retire comfortably but luxuriously.
Not Having An Exit Strategy
The key to having a business is to also have an exit strategy. This could be by automating your business or by selling your business for a hefty profit. So make sure to plan your exit strategy from the get-go.
You cannot do it all, maybe at the beginning, but little by little you want to release the control and let your business manage itself. This will give you freedom.
Not Having A Financial Advisor or Financial Coach
This applies to everyone, but especially to new entrepreneurs. If you don't have anyone guiding you, keeping you accountable or on track of your spendings and expenses, this could cause a big business failure.
Make sure to hire a Financial Expert
Comingling Personal And Business Expenses
Business is business and personal is personal. I see this mistake with a lot of my clients. They don't know how to separate their business expenses from their personal expenses.
This is a huge mistake, especially when the time to file taxes comes around.
Also, it only reflects that you are not taking your business seriously. Another thing is that when you mix business with "pleasure" you can devalue your business because you are showing too many expenses reducing your profit margin.
Always separate your business expenses from your personal expenses.
Not Having The Right Projections
I know this is your baby, and this is the best thing ever. That is why you feel very optimistic about your business overestimating the growth and underestimating the costs.
Remember, even though it could be very emotional to be in business, it is far worst not being in business. Therefore, take the emotions out and create realistic projections.
Not Tracking Your Spendings
If you don't know where your money is going and on what, you will not know if you are making a profit or not. Also, when the times comes to put together the "books", you will have no idea where to start.
If you don't know how to manage your books, my suggestion is to hire someone that does.
The IRS doesn't care if you don't know how to do this, they assume it is your responsibility to know everything as a business owner. This happened to me about 10 years ago and learned my lesson. I thought that as long as I had an accountant, everything was fine, well, I was wrong.
I hope that these tips help you to start your entrepreneurship journey on the right foot. And remember, financial education is the path to freedom.
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