Many entrepreneurs actively pursue their business goals without giving much thought to actually operating the business. Instead, they are more interested in producing profits to improve their lives. Unfortunately, reality is that many people who dream of starting their own business do not follow through on this effort and many fail within a year or two. Learning from other business owners’ financial mistakes can help to develop a better strategy that may ultimately improve the chances of success.
Not Having a Plan
Developing a business plan up-front is a process that lacks excitement, but it is imperative to getting your business on track. A thoughtful business plan can guide your actions. This plan is based on your research about and knowledge of your competitors, market pricing, who your target audience is and how you will reach your target audience through effective marketing.
These are all critical factors that will impact how much capital you need to run your business until you are able to turn a steady profit. These factors also will help you to more realistically project when that time may be. It is important to be optimistic about the future, but it is wise to approach the future with realistic optimism. Essentially, you need to understand potential obstacles and how to steer around them.
Having Limited Knowledge of Finance
While having a solid educational background is essential for starting and running a successful business, high school and college courses may not have provided the solid financial education needed to run a business. In fact, according to the Program for International Student Assessment (PISA), approximately 22 percent of teenagers in the United States do not have basic financial literacy skills.
Financial literacy is essential with business management. This is because your ability to avoid costly financial mistakes will directly impact your business decisions every step of the way. A smart idea is to take all necessary steps to educate yourself about terms and concepts. Even with your knowledge, it may also be advisable to hire a financial expert. Because you need to understand what your financial expert is saying, you should not forsake your own personal knowledge in this area when you get professional assistance.
These are some of the primary reasons why you should hire a financial advisor:
- Even with your education about financial matters, a professional advisor has refined expertise on detailed topics. Remember that this professional may have many years of focused education and professional experience.
- Through the insight of a skilled financial advisor, you may learn about money-saving strategies. This may include ways to reduce your tax burden or manage business debt.
- A financial advisor can help you to position your finances so that you can strategically grow your business.
- Through professional financial advice, you can learn how to better separate your business and personal finances.
Not Simplifying Your Business Processes
Entrepreneurs are very busy individuals, and time is in limited supply. Managing your time and learning to simplify your business processes may seemingly have nothing to do with finances at first glance. However, when you learn to work more efficiently in all aspects of your operations, you can focus your attention on the tasks that will ultimately bolster your chance of success and improve your profits.
There are many ways to simplify business processes for maximized efficiency. For example, software programs can be used to automate social media posts and even to analyze the results of online marketing campaigns. Many banks offer professional tools that can help you to manage banking activities. Collaboration tools and resources can be used to assist with team projects. Highly repetitive tasks can usually be automated or outsourced to save time.
While you should explore the many software programs and apps available, avoid rushing into their adoption haphazardly. Some programs and apps may be too frustrating or confusing to offer real benefits. Choose your technological resources carefully.
Relying on Personal Savings and Ditching Your Day Job
According to the Small Business Administration, almost three out of four small businesses used financing for startup or growth efforts in 2016. In addition, more than half of small business owners dip into their personal bank accounts for startup capital. It seemingly makes sense to use your personal funds to launch a business. After all, you will be able to avoid going into debt. However, draining your bank accounts all at once can be a major mistake.
First, be aware that your own personal funds may get you started with the launch, but you may need additional funds to keep the business going until it turns a profit. Therefore, taking on debt may be inevitable in some cases.
Second, when you empty your personal bank accounts while your business is still operating in the red, you put yourself in a precarious situation with your personal finances. Dipping into retirement account funds also affects your financial future.
One way to avoid taking on unnecessary debt and funding your venture with savvy use of personal funds is to take it slowly. Continue working at least part-time in your field to generate regular personal income. Take baby steps with your launch so that your business may grow without the need for so much capital up-front. The reality is that your business could fail, and you do not want to be in a tough financial spot personally if your business effort has a dire outcome.
Don’t make common financial mistakes
As you can see, many entrepreneurs do their best to launch a successful work-from-home business. However, there are many common financial mistakes that could be avoided with planning and forethought. Keep these concepts in mind as you walk through the launch of your business and guide your business through its first few years.