Have you recently made the decision to go out on your own and start a business? Congratulations! Being an entrepreneur is an exhilarating and freeing experience and it can lead to an incredibly fulfilling career. However, it also has plenty of potential pitfalls! I’ve counseled a number of new entrepreneurs and have found that there are mistakes commonly made by this group. Fortunately, with some humility and a lot of emotional agility, you can learn from their mistakes and prevent yourself from making the same ones. Here are the seven biggest mistakes I see entrepreneurs make and how to avoid them.
1. Not Separating Accounts
Keeping your personal spending and your business spending separate is crucial to short as well as long-term success. When you blend accounts, you can easily lose track of the big picture. Large personal bills take a chunk out of revenue and lines are muddled. This can also cause a big problem when you start looking at deductions for tax time. It’s not hard to start a separate bank account for your business and I suggest you do so as soon as know you’re going to open your doors.
2. Immediate Large Business Expenditures
Just as you exercise spending discretion in your personal life, you also need to apply it to your business. Sure, you might be used to working on the newest laptop or throwing money at large, expensive conferences for your employees if you come from a corporate background. But as a new entrepreneur, you need to save money wherever you can. This might include working on that old laptop for another year or skipping that cross-country conference in favor of a simulcast one you can watch in your office. Keep the big picture in mind and realize that cutting costs is only temporary.
3. Large Personal Purchases
If you got used to a big corporate paycheck, you probably got pretty good at spending it. The newest model of car, the best suits, pricey vacations…the list can go on and on. But now that you’re an entrepreneur, you need to be more frugal. This is a good area to practice a little curiosity about your own preferences. What makes you think you need that new car or that fancy watch? One of the four healthy habits of the wealthy is contentment, which most of the time boils down to fighting your urge to always accumulate more.
4. Accumulating Debt Based on Anticipated Revenue
Many new business owners open credit card accounts as a back-up or to fund necessary start-up costs. While this may be unavoidable, continuing to spend on credit because you anticipate you’ll be able to pay them off with future earnings is a mistake. Keep your credit card spending to a minimum and use them only in emergencies or for necessary costs you can’t quite cover yet.
5. No Plans for Lean Times
Sure, your new business may be thriving now, but what happens when the economy tanks? Or when the holidays are over and consumer spending dries up? Or a million other scenarios that could lead to a decrease in business? If you’re experiencing success now, you must plan for the lean times that will inevitably occur. Put away some of your profits in a savings account or establish lines of credit with your bank that you can fall back on. That way, when lean times hit, your business won’t take a dive.
6. Not Taking Uncle Sam into Account
Oh, the joy of taxes! Taxes can be the bane of an entrepreneur’s existence—especially if you aren’t properly planning for them. Your tax bill can easily get out of control if you aren’t setting money aside or paying on them regularly. Depending on the type of business you have and where you live, you may need to account for federal, state, local, payroll, or sales tax (or all of the above). Make sure you work closely with an accountant who can keep you on track so you don’t have a nasty surprise when tax time rolls around.
7. Going Without a Roadmap
Have you been flying by the seat of your pants since opening your business? Don’t be embarrassed, it’s a pretty common thing to do! However, you must develop a roadmap as soon as possible regarding budget, goals, and future plans. If you don’t know where you want to go and have a framework for getting there, it becomes very difficult to realize when you’ve gone off the rails and even more difficult to get back on track.
Have you recently started your own business? You’ll probably recognize at least one of these mistakes as something you’ve already done or have almost done. The key is to correct your mistake as soon as possible and get yourself back on the path to success.
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