3 Money Mistakes Entrepreneurs Make – and How to Fix ThemFebruary 14, 2022
Even the savviest business owners have been there: we get swept up in our business goals, letting our personal priorities fall by the wayside. But as every entrepreneur knows, the longer our entrepreneurial dedication eclipses our personal needs, the more our business and personal goals will suffer. Thankfully, we can use the same financial frameworks to pave the way toward success – for ourselves and our ventures. Here are 3 common financial mistakes that entrepreneurs often make and how you can manage them.
1. No financial plan? Time to get organized.
Creating a financial plan is the first step to managing both your personal finances and your business. Just the process of creating a plan can give shape to our priorities, ensuring that our spending will be strategic, not erratic.A financial plan begins with two essential questions:
- What are my short-, medium-, and long-term goals?
- What will it cost to achieve these goals?
A timeline gives us clear checkpoints to assess if we’re on track to achieve our goals. You can begin to assess your personal needs by asking, “How much money do I need to live comfortably?” and then give yourself a personal income deadline (“If my business doesn’t generate this income by my deadline, then I will consider returning to full-time employment.”). To prepare ourselves to achieve our goals, we need to understand our costs. If your goal is to “live comfortably,” you’ll need to create a budget that reflects your lifestyle. When it comes to your business, you’ll need to reflect on the cost of running the show. With our timelines in mind, we can honestly ask ourselves: which expenses are essential to achieving our goals? It can be easy to get caught up in the daily tasks of keeping the ship afloat. Whether you’re just getting started or conducting an annual check-in on your finances, taking a step back to look at the big picture can help us rebalance our daily priorities. Consider this an opportunity to reflect on your core vision.
2. No debt management? Create a strategy.
Few recognize the impact that personal debt can have on the ability to run a business. When you’re just getting started, your personal credit history can directly affect the success of your business. For entrepreneurs without an established business credit history, banks will use personal credit to decide whether or not to approve a loan. Managing your debt load and improving your credit score can improve your chances of getting your business off the ground. Debt can also take a heavy personal toll, affecting our ability to effectively run our businesses. When debt becomes a fall-back plan rather than a strategy, our emotional and physical health suffers. Do yourself and your business a favor by tackling debt head-on.
3. No emergency fund? Expect the best, prepare for the worst.
We take all the proactive steps to set ourselves up for success, but what happens when the ball comes hurtling out of leftfield? Floods, heart attacks, a global pandemic – these are the last things we want to think about. Instead of getting wrapped up in endless “what if?” scenarios, we can cover our bases by buying insurance and contributing to an emergency fund. As an entrepreneur, you’ll need insurance to protect yourself and your business. Like your business, your insurance policy mix will be unique, but there are some essential types of insurance that almost every entrepreneur needs. To get started, begin exploring the following types of insurance:·
- Professional liability insurance
- Health insurance
- Worker’s compensation insurance
- Property insurance
- Life insurance
Likewise, establishing an emergency fund for both yourself and your business can make a huge difference in challenging times. If your health took a nosedive or you lost your biggest client, would you have a financial cushion prepared? Consistently squaring away a percentage of our income into an emergency-only account can prevent rocking the boat during turbulent times.
Pull back and look at the big picture
Sometimes it feels simpler to edit individual pixels than zoom out to look at the bigger picture. But when it comes to running a business, it pays to pause and examine our entrepreneurial vision. If you took a snapshot of your finances today, what would you see?