3 Money Mistakes Commonly Made by Young Entrepreneurs
We live in the era of innovation. Young and brilliant entrepreneurs across the world are coming together to build amazing products. Some start much younger than others and even defer traditional education to begin their journeys.
One of the biggest challenges of starting a new business is how to properly manage your capital. Typically, the younger you are when you start your business the less financial aptitude you have.
That said, it’s very important to learn as much as you can while you scale your business. Here are three money mistakes commonly made by young entrepreneurs and how you can avoid them:
Mixing Personal and Business Finances:
Young entrepreneurs typically like to skip past the logistics when starting their company. Establishing a clear separation between your personal and business finances is absolutely necessary when starting a company.
If you fail to do so, you are putting your personal credit and assets at risk. In addition, you will create a ton more work for yourself when tax time comes around. Whether it’s calculating taxes you owe or how much you can save on deductions, it’s a nightmare if your finances are commingled.
The best way to avoid this off the bat is to create a separate operating entity and open a business bank account. If you want to start making payments as well you can even get a business credit card. By creating separate accounts for all business related accounting you’ve made a clear separation between your assets. This is an easy fix to a potentially devastating problem.
Poor Cash Flow Management
It’s estimated that about 82 percent of businesses fail due to cash flow problems. The main reason for these problems is improper cash flow management. The key to maintaining a steady and consistent cash flow is organization. If you’re organized you’ll be able to easily run reports, make projections, and lastly identify where changes need to be made.
The best way to stay organized over cash flow is to utilize online invoicing and accounting tools. These tools help you digitally manage your finances and completely streamline your bookkeeping and reporting. Many of the most popular payments solutions offer a wide variety of tools that can easily scale with your operation.
Growing Too Quickly
Young entrepreneurs are often under the impression that you need to move at lightning speed to be successful. Sometimes this is true but you should always try to avoid scaling prematurely.
For example, if you launch a big marketing campaign before your product line is ready – you’ll end up with interested customers and no ability to deliver. Sometimes they’ll stick around, but more often than not they’ll simply go to the closest competitor instead.
In addition this often results in entrepreneurs spending their capital before they need to. If you’re too trigger happy you’ll end up spending tons of capital to no avail. You need to be very disciplined and frugal in your early stages. In fact, you should always be frugal with your capital. Fortune 500 companies can afford a failed marketing campaign, your startup probably can’t.
Every entrepreneur will tell you the best way to learn is through trial and error. It’s also common for entrepreneurs or founders to think they know all the answers. That said, they’ll push forward blindly and learn things the hard way.
If that’s the case you better make sure you learn your lesson because you may not get a second chance. For any young entrepreneur out there starting their business, make sure you cultivate your financial aptitude. You’ll be more successful in the long run because of it.