Entrepreneurs come in many shapes and sizes, but one thing they all have in common is unbridled optimism. We each have a dream and that dreams is ours for the taking. All that is left is discover the path and run down it.
In our optimism and drive, sometimes we make decisions that work in the short term, but hamstring us in the long term. Even serial and seasoned entrepreneurs make these 3 financial mistakes. While these mistakes are common, they are dangerous and can be fatal for your business. Check yourself and see if you have made any of the top 3.
1. Going Large
As true believers, we see the vision. The end result is there in full Technicolor vision in our mind. That mindset is both a blessing and a curse. As we run toward the goal, weact as if it is already a reality instead of scaling as we grow.
For example, if we’re building a tech company, we know we’re going to be the next Google. Q: What does Google have? A: Top talent, generous benefits and a killer office. What do we need? A: The same!
In truth, we need to grow with our business. We need to be willing to grow and evolve as the business grows. That means only buying and committing to what we need right now and for the short foreseeable future. We don’t know how big and how quickly we are going to grow and having expensive items, overblown overhead and extensive payroll will cripple growth.
Paying for items month after month that aren’t necessary means you aren’t able to afford the things that could really make a difference in your business. You might not even consider other things because you’re too busy trying to pay for what you already have. Don’t put yourself in the position of struggling where you don’t have to. There will be struggle enough on your entrepreneurial journey.
I like to advise clients to put themselves and the item they are contemplating in the realtor/lawyer and office/car category. Realtors need nice cars because they drive clients around to view property. Lawyers need nice offices because they meet with clients in their office. Realtors like nice offices and lawyers like nice cars, but they don’t need them. They to knowing what’s necessary it to look at the end result for the client/user.Get what your clients will see now and grow into the other, less important items.
2. Failing to Keep Your Finger on the Financial Pulse
What’s working and what’s not? Where are you getting the most bang for your marketing buck? Why aren’t you able to bring as much home each month as you’d like? The answers to all these questions lie in your profit and loss (P&L). If you’re not financially oriented, a P&L can seem like a departure from your real focus, your true business. However, not knowing your numbers can cause you to overlook important changes that will make your business thrive.
A bookkeeper and CPA should be your very first hires and they can be hired very economically. Hire a freelance bookkeeper to track your income and expense and provide you two monthly P&Ls. The first should be for the month that just closed and the second for year to date. Commit to spending one houreach week looking over the numbers and thinking what’s reflected in the P&Ls. Make sure you are spending money where you want to spend it. Also think about the income side. This is where you see where most of your income comes from. Compare that to your time. Are you getting the most for your efforts? There is so much to be learned from those little numbers.
Consult with a CPA once every quarter to make sure your decisions are in line with what benefits you from a tax perspective. We had a podcast guest that saved his client $40,000 in an hour consultation by changing some of the processes and structures of his business. I’m not sure the CPA’s hourly rate, but it’s certainly well under $40,000. That was an hour’s time well spent.
Your bookkeeper, CPA, P&Ls and the one-hour you spend in contemplation of the numbers will keep your business on track, healthy and put cash in your pocket.
3. Failing to mark the exits
I hate to talk about failure, but with my background as a financial solutions attorney, I have a unique perspective on business. I’ve seen the fall out. I know what the end can look like.
San Onofre State Beach is a popular place to surf and draws people who have been surfing 40 years and people who have been surfing 40 minutes. Besides the obvious differences, there is another way to gauge skill level. Good surfers get off the wave when it ends, turn around and paddle back out. New surfers ride all the way into the beach – until the skeg drags and the rocks tear up the bottom of the board. A seasoned surfer is hesitant to lend a board to a newbie for just that reason. It’s a sure fire way for your board to end up in the shop.
It’s painful to see an entrepreneur who has ridden their business all the way to the beach. They’ve maxed out their credit cards, cleaned out their retirement accounts, borrowed from their family and it’s over. It’s over in every sense of the word. They haven’t left themselves anything.
Mark the exits at the beginning. How long will you ride this business? What will you put into it? Where will you draw the line to provide a safety net for you and your family? Give yourself margin to live to fight another day and for your next business venture.
Where To Go From Here:
If you’ve made one of these mistakes, all is not lost. Do what every good entrepreneur does – pivot. Make the changes that will build a strong foundation. Pull in the resources you need. Give your business the best possible chance of survival and watch it thrive.
Bio: Emily Chase Smith is an attorney who specializes in financial solutions for entrepreneurs. She gives practical advice and inspiration to bridge financial gaps and get you back in the game. Emily can be found at EmilyChaseSmith.com and @EmilyChaseSmith.