You can have the best idea, the best product, the best workforce and the best of everything but you if you are not good in money management, not even the best money manager, you are definitely in trouble. The ability to master money, to control money instead of being controlled by money is a big part of entrepreneurship. I dare you to tell me any successful entrepreneur that isn’t good in money management or without good financial advisors. These are the 7 money mistakes most entrepreneurs make you should avoid at all cost
Entrepreneurs make mistakes all the time.
Making mistakes is part of the process. You are going to make mistakes one way or the other but when it comes to money mistakes, my brother, it is better you avoid them at all cost.
Money mistakes are the most terrifying and terrible mistakes you can make in entrepreneurship. They can cost you everything, from square hundred to the square of minus one, not even zero.
A lot of businesses have failed due to this 7 money mistakes am about to mention (don’t be in a hurry. Just site tight) and this are money mistakes to avoid in your 20s if you are still a young guy reading this article.
You should consider yourself lucky.
A lot of studies have shown that entrepreneurs are fond of making 10 most common financial mistakes during the formative years of their businesses and this can be the reason why most small startup businesses fail within their first three years.
You can imagine how painful that can be, after borrowing money from well wishers, family members or even the bank, and after two years or so, you are coming to tell them lots of stories about how you mismanage their money. It’s definitely not cool.
I decided to summarize the 10 most common financial mistakes most entrepreneurs make into 7 money mistakes most entrepreneurs make when starting their businesses just to make everythingeasier and more concise. Am sure you wouldn’t want to be bombarded with too many details.
I often hear a common statement from entrepreneurs:
since I don’t know much about finances, I would hire an accountant or just get an experienced person to manage my account.
I won’t discourage you if you choose to hire an accountant or a financial manager (entrepreneurs don’t know everything) but I can assure that getting an experienced person won’t solve the 7 money mistakes most entrepreneurs make.
The ability to manage money, to know what not to purchase is a skill every entrepreneur needs to master in other to succeed (knowing what not to do or purchase is better than knowing what to purchase or do) Your financial manager can only do little when you don’t know which or what direction you want your finances to go.
Besides, we’ve heard stories of fraud, illegalities and financial misappropriation from the same people who were entrusted with the management of finance.
Even your own brother can not be trusted all time.
The 7 money mistakes most entrepreneurs make will show you how to minimize losing money even though you can’t avoid loosing money.
You can’t avoid loosing money, just as how you can’t avoid making mistakes all the time. You will definitely make mistakes and you will also lose money (don’t be afraid of making mistakes because we learn most from our mistakes than we do from our successes)
There is a saying that “a wise man learns from his mistakes but the wisest learns from other people’s mistakes”
Money mistakes tends to be different from other types of mistakes. Please don’t get me wrong, am not saying you should or shouldn’t make mistakes.
But am instead saying you should limit your mistakes to the minimum. You can’t avoid mistakes. You can only limit them and the 7 money mistakes most entrepreneurs make will show you how to lower the possibility of making them, or make the mistakes negligible even when they are made.
Recovering from financial mistakes and money problems can be the most difficult thing to do which is why I give you the 7 most common money mistakes and how to avoid them
The 7 money mistakes most entrepreneurs make
Not separating business account from personal account
This is one of the most common 7 money mistakes most entrepreneurs, especially the young ones. You can’t run your business with your personal and business account combined. It’s an error. My friend would call it “female mistake” if you don’t separate your business account from your personal account, you will pay the price later.
You should get out of your comfort zone and create a separate savings for your business. This should be done before you begin collecting revenue or calculating profit. A credit and checking account should be created as this will allow you to see the various cash inflows and cash outflows of the business.
When you do this correctly at very beginning, it allows you to see a very clear picture of your business financial health by preventing an overlap between what your business is generating and costing you, and what you personally earn and spend over a month.
Separating your business account from your personal account can prevent you from damaging your credit score when your business decides to have a negative turn.
And don’t forget that having a good credit score helps you to secure loan easily from a bank. A good credit score is something you shouldn’t play with if you are a loan seeker.
The moment you create your business account, you begin to see how your business affects your everyday life and thinking.
When you begin to collect revenue from your business, having a separate business account will allow you to plan how to utilize the revenue you generate from the business, how you want to expand the business and your customer circle.
There is definitely no shortcut to separating your business account from your personal account. If you don’t do this, then you’ve violated the first rule of money management and you are making one of the 7 money mistakes most entrepreneurs make… please avoid it all cost. Separating your business account from your personal account won’t cost you anything.
Making Big Purchases for the Business from the very first instance
I believe in starting small and dreaming big. This is one lesson I’ve learned from most successful entrepreneurs.
Aliko Dangote, who is the chairman of Dangote Group, and the richest Black Person in the World lives by this principle, the principle of starting small and dreaming big.
Making big purchases is one of the 7 money mistakes most entrepreneurs make when they start to grow their businesses. It just can’t work that way. You need to understand the law of process. Rome wasn’t built in a day.
You might want to make big purchases for the business at the start up stage, purchases like best new laptops, a flashy and beautiful website and some other expensive equipment; which might be mandatory for the efficient running of your business but you should always ask yourself this very question before making any purchase: this expense in question, how is it going to affect my business in the short and long term.
Will this expensive purchase generate more revenue for me in the short term?
If your answer is in the affirmative then you can go ahead to make the said purchases otherwise, don’t. You are just trying to cripple your business if make such purchase.
The one thing I will always remember from my economics is, there are always substitute goods for each product or machine you want to purchase and some of this substitute goods perform the same or even better functions than the originally intended goods. Let me give an example to drive home my point….
Let’s assume you wanted buying an apple laptop as your preferred and first choice but later on, you realized that buying an apple laptop will cost you more, and that Dell or HP, which are other products, would perform the same function you want the apple laptop to perform.
Mind you, the Dell and HP are more cheaper. In that case, you will go for the substitute product to save cost. You might even decide to use the extra money you save to acquire a printer or a small generator….
Always evaluate the potential impact of any purchase you wish to make. That way, you will be cautious of your spending. You wouldn’t want to go about making expensive purchases when your business is still yet to see the light of the day.
My friend, be wise. Don’t play safe but play smart. You can avoid some common money problems if you avoid this common 7 seven money mistakes most entrepreneurs make.
Making Expensive or Large Personal purchases
I once read a book in which the author highlighted some 10 most common financial mistakes most people make and on the list I saw making expensive or large personal purchases, which is now on my list of 7 most common money mistakes most entrepreneurs make.
I call this a financial blunder because it just doesn’t make sense. You can’t be buying expensive cars, Gucci wristwatches and the likes while you are growing your business.
When you are starting your business, one way or another you will come across certain roadblocks, unforeseen circumstances that will lead to unforeseen expenses, and these expenses might be huge if you are not lucky.
When you choose to be making expensive personal purchases such as buying Lamborghini or Bugatti, or buying the most expensive house in your street, you won’t have money to take care of these unforeseen business expenses because by then, you must have finish squandering your personal savings.
This will leave you with the option of running up and to borrow money. If you unlucky again, this might be the period your family members won’t have money (maybe salaries have not been paid or Children’s school fees are hanging on their neck) and you will wish to go take a loan from a bank (the bank manager might already be tired of seeing your face)
Either way is a disadvantage to you. If you want to make expensive personal purchases, make sure you have a side savings, or a side fund, or back-up fund (I don’t care whichever name you call it) just in case things go soar.
When you don’t have money, and you become stranded is when you will make the most irrational decisions you will ever make, decisions that might cost you your business in the future.
Avoid this 7 money mistakes most entrepreneurs make by spending wise in other to stay safe.
Incurring debts with the expectation of high future revenue
The bad thing about the future is the probability for bad things to happen, and the good thing about this same future is the probability for good things to happen. Even the person who calls himself Warren Buffet doesn’t have a clear picture of what the future will look like, and this is why I consider it dangerous for you to incur debts, especially credit card debt, with the hope of higher future revenue.
What if things don’t go as planned? What if they go the other way round?
Even the people who consider themselves expert at predicting the stock market still lose money. The uncertainty of the future is something you can never ignore when incurring debts.
What if you borrow and are unable to payback due to lower revenue?
Optimism is good but there is a difference between optimism and foolishness. Incurring debts with the expectation of higher future revenue is one of the 7 money mistakes most entrepreneurs make.
Never count your eggs before they hatch is an advice that never gets old in finance.
Not saving for emergencies and trying times
You will never know the importance of having a side fund until when an emergency arises. Not saving for emergencies or having a side fund is the worst 7 money mistakes entrepreneurs make.
If students can save for emergencies or have a side fund just in case things go bad, I see no reason why you, who claim to be an entrepreneur won’t have such side fund.
Emergencies and lean times always come up, and how you navigate through those emergencies and difficult times determines your problem solving capacity, and your problem solving capacity determines how much storm you can weather to succeed
In once read an article that says your ability to succeed in life doesn’t only depend on your Intelligent Quotient (IQ) but it largely depends on what we call Adversarial Quotient (AQ)
Your adversarial quotient measures how much difficulty you can withstand before you give in.
Now tell me, if you are not saving for emergencies or difficult times, how can you navigate through these periods? It’s a rhetorical question by the way…
Failure to plan for upcoming tax obligations
Taxes can consume huge part of your savings when you don’t foresee and plan for them. Taxes vary from place to place. Some are higher while others are actually lower. Either way, they are always worth planning for.
You should estimate the percentage of your savings or revenue that will be consumed by taxes. That way, you will have a clear picture of where you are going even before you get there.
It is always less easier to travel on a route that is known than an unknown one.
One of the 7 money mistakes most entrepreneurs make, which you should definitely avoid.
Not drafting a clear budget for your business
Having a clear outline of your future expenditures and revenues will help you define or at least have an idea of how much to operate the business is gonna cost you. This is what a budget does.
It helps you set aside money for the coming months, or years as the case maybe, for various purchases to be made, debts to be paid off and an estimate of the expected future revenue.
I don’t know of any successful entrepreneur that operates without a budget. Maybe you can start the list. I digress by the way…. .
Not having a control over money – money controlling you
How can I be controlled by money? Is the question you might want to ask
You and I will both agree that it’s far easier to loose money than it is to earn it. One simple decision can cost you huge amount of dollars, or even your entire business.
When you begin to lose money often than not, you begin to make series of bad decisions and financial mistakes. And more failures result to more bad decisions, and the circle keeps repeating itself.
You are being controlled by money in this situation.
The fear of not loosing more money is doing your thinking (emotional thinking)
You can avoid this by paying more attention to details of your personal and business cash flows, debts incurred, and retracing your steps backward a little bit to know where you missed the dots.
When you begin to track expenses, have an outlined and detailed budget, keep a fine line between business and personal account, and always thinking of how to make more money with each expense you incur, you are definitely on your way to mastering money matters and having control over money.
The bitter truth, which must be told regardless of how you feel
You can’t avoid loosing money all the time. Loosing money is part of the game, and loosing is part of life but how you handle the loses defines whom you are.
Even the world billionaires would tell you they’ve lost money several times. If you are not ready to loose money, then you are not ready to become a seasoned entrepreneur.
You will loose money (no doubt about it) but you can minimize the amount of money you loose by avoiding the 7 money mistakes most entrepreneurs make.
As an entrepreneur, you should ensure you take calculated risks all the time.
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