13 Apr 5 Common Financial Mistakes of Start-up Entrepreneurs
To err is human, they say. No words are more valid when it comes to business. There will always be missteps. But since many have already made them, this article will help you avoid them.
Here are some of the most common financial mistakes of entrepreneurs especially when they are just starting out.
Not getting a financial consultant
New entrepreneurs will most likely hate hiring a financial consultant, thinking that this is something that large corporations do. It’s quite a misconception because it’s the small businesses that really need counsel. According to Inc. magazine, 46% of businesses fail because of incompetence. While the word is quite broad, it would refer to the overall management of a business. And that could be avoided if an expert was on-hand to give out wise financial advice. Hiring a financial expert should be among the priorities when starting a business. It will be worth it in the long run.
Integrated financial accounts
How many times have we heard that business and pleasure should not be mixed? Well, it’s the same with financial accounts. Always separate your business banking activities with that of your personal—which you more likely will use for leisurely purposes—accounts. Do this even when you have a sole proprietorship. This is the best way to track your business’s financial progress—whether your business is making money or not.
So this will go back to mistake #1. Business owners make bad pricing mistakes because of ignorance. This is among the more important reasons why a start-up business should hire an expert because they know how to calculate the best price to mark a product. Financial mistakes of entrepreneurs cost money, and that is not something a new business can afford. Pricing has a wide coverage that involves labor, cost of materials, production cost and others. You also need to consider the appropriate markup that will give you a good enough profit that will also fit your target market’s budget.
Spending in excess
If you are fresh out of college and are starting a business, chances are you are still paying your student loan—unless you are among a handful whose parents could actually afford tertiary education. Starting a business is going to be hectic financially. You are still trying to make a name for the business so profit will be from zero to meager. Be thrifty and practical. A lot of new entrepreneurs spend so much the moment the business starts making money as a reward for a job well done, while some do it with the notion that once the business starts making money, it will be consistent. Be prudent with your spending, especially when using the business account. If you still have a car, then don’t buy a car when the first profit comes in.
Not planning expenses ahead
Every business, no matter how small it is, should have a business plan. This is actually among the most common financial mistakes of entrepreneurs: not having a business plan.
Startup owners think that since it’s just a small business, there is no need for a financial map. WRONG! Having a financial plan allows you to anticipate various issues when tax obligations come in and other business-related expenses. A fiscal plan also recommends a fund for emergency purposes because no one really knows when disaster strikes.