Launching a business and keeping track of all your personal finances is a pretty challenging task. A lot of young business owners make different kinds of personal financing mistakes. Today, there are plenty of young entrepreneurs who become so consumed with their business that many of their personal finance endeavors are overlooked. Here are a few of the most common finance mistakes that many young business owners make.
Young entrepreneurs usually spend their savings freely to look professional. They lease upscale office spaces or perhaps expensive equipment. Overspending on company expenses may not be necessary and will quickly erode personal finances. Spend money on building an efficient product and then get it to the users. If you aren’t making good ones, then there is no hope for progress.
Cutting Ends on Formalities
Young entrepreneurs usually cut corners when it comes to accounting and legal advice. They may have known an account or lawyer and ask help for licensing matters or looking at their company books. Make sure you hire an accountant or expert in the field. A single accounting mistake can result to paying more taxes than you should. When personal finances are in chaos, it may scare potential investors or maybe force you to put more money in the business.
Not compensating thyself
There are a number of young entrepreneurs who tend to live off on noodles and put all their resources to the business without even getting a dime. While this may help cash flow into the business, it gets really tricky when the company is paying for your rent and buying your meals. Pay yourself a decent salary to help you establish personal finances separate from your business.
Not Planning for the Worst
A lot of young entrepreneurs think that they are bullet proof. And because in reality they are not, they also need to plan for worst case scenarios. Try to draft a succession plan. Get an insurance to sustain the business when you are unable to run it anymore. If you have a partnership business and a frim that cannot be easily sold, you can try to establish a buy-sell agreement.
Mixing personal and business assets
Whether it is taking out a second mortgage or guaranteeing a loan, leveraging personal assets for business is a no-no. When the business sours, your creditors can go after these assets. Use collateral that is from the business so that you won’t be personally liable for any loan.
The use of personal credit cards for business
Relying on personal credit cards is very risky. Mixing your company charges to personal ones can create an organizational havoc. It would be wise to apply for a business credit card that will be used exclusively for operations.
Raiding the firm’s coffers
If you have experienced three or four outsized sales, young entrepreneurs usually become overconfident. They begin spending the business money indiscriminately. They start spending money on cars only to find out that the next several months will be slow.