4 Common Financial Mistakes Made By Entrepreneurs
1. Not investing where it counts
A start-up business doesn’t have a lot of money to work with, but an entrepreneur may regret not investing where it will benefit the business.
It may feel financially comfortable to settle for the smallest work space but trapping a growing business in a small box will create expensive disorganization. There is also the risk of looking amateurish to clients. Economizing on supplies is another way that entrepreneurs wind up paying more in the end. It’s also a mistake to not secure good professional help and financial advice. As Jay Goltz of the New York Times says, “There is nothing more expensive than a cheap lawyer or accountant.”
2. Setting “Competitive” prices
No business wants to alienate clients by charging high prices, or drive away long time clients by charging more. However, focusing on underselling the competition rather than the necessary income can leave a business owner with too little wiggle room. Goltz explains “At some point, they have to hire an employee, and that low price will leave no profit after the employee is paid.”
3. Putting personal and business funds in the same account
When it’s just one person that is running a business it may seem more manageable to keep all the finances in the same basket. Inc.com ranked this among the biggest financial mistakes. Using the same credit cards to pay for groceries and ink cartridges, for instance, complicates an
entrepreneur’s life and opens the door to confusion and serious financial risk. Not maintaining two separate systems will create more determining where funds are, and where they must go.
Also, when same money pays for home and business it can affect the personal credit score if the business bills go unpaid, endangering the money or credit needed for daily life. It also risks IRS trouble. When all the money is coming from the same pool it’s easy to misuse business expenses, or appear that you are.
4. Choosing sole proprietorship
According to Susan Schreter of Entrepreneur.com the convenience of establishing a new business as a sole proprietorship is a “lure” that must be avoided. It’s another way of allowing the financial troubles of the business to follow you home. If a business is a sole proprietorship then it is not, legally, a separate business and personal money can be collected to pay business debts.
Jonah Engler is someone you can count on when you have any finance questions! Engler is a finance expert and an entrepreneur from New York.