Today I’m welcoming Nelly to the blog. She’s a brand new guest poster here at The Savvy Solopreneur, with a background in finance, and she’s sharing her advice regarding financial mistakes we need to be wary of as solopreneurs. Over to Nelly…
Starting a business is a dream for most of us. What could be better than running your own company, on your own terms? As a solopreneur, you also have complete control over your business. However, at the same time, it can be risky too. You don’t have anyone to share financial responsibility with, so you increase the risk of making some costly mistakes. In turn, this can reduce your profit percentage.
Here are a few mistakes which solopreneurs often make that can become costly. Let’s also look at some ways to avoid them.
Starting without a proper plan
To be successful, you need to have a proper plan. It is a prerequisite to becoming a successful solopreneur. Business doesn’t come without risk. One mistake can ruin your financial health, so you’ll have to do a smart set up.
Have a vision for your business. You have to think about the future of your business and guard it against any sudden emergencies. Make sure you have an emergency fund in place to cover this. Even as a solopreneur, you should think of your business as an asset and plan carefully.
Also, do not spend too much on starting your business. If you do, you might take on debt you’ll find it hard to repay. Therefore, during the initial phase, start small. Do not invest a lot of money into your business venture right at the start. You can always expand later.
Not consulting professional advisors
To stretch the last point a little further, it is better to take professional advice before you set up your business. Discuss with experienced or trustworthy people how you’re planning to set up your business and what measures you’re taking to minimize risk. You may also need help from financial professionals like a good tax consultant, a business attorney, and so on.
Not planning a business budget
Research indicates that most Americans don’t have a budget. As a result, they can face serious issues tracking their business expenditure. Just like managing your personal finances, planning a proper business budget is a must. You have to plan where your money will be spent. Once you know your spending limit, you can decide what you really need to spend on, and where you just can’t afford to spend right now. You can focus on things that are really important.
Another important thing is to have realistic expectations around revenue. Most solopreneurs have high hopes and expectations; but remember, there are always external factors beyond your control. So plan your budget based on realistic figures.
Also, don’t make the mistake of not paying yourself. Do not neglect your personal needs. Do not get so much involved in your business venture that you overlook your and your family’s needs. Your personal financial health needs to be sound to flourish as a solopreneur.
Failing to track your expenses accurately
Always set aside money for every expenditure. Tracking your expenses accurately will give you a clear picture and you can plan your business budget properly. More than 80% of start-ups run into problems, as they fail to analyze their cash flow. They lose control over the inflow and outflow of money.
A valuable suggestion – Take into account your expenses and revenue as they occur instead of when the payments are due. Paying bills is an important part of managing a business.
Continuing with your pre-solopreneur lifestyle rather than adjusting it
It will take some time to get success in your business. So, don’t become overexcited and leave your present job. For some time, you may have to continue with both, until the time comes that you can meet your own and your family’s needs with a certain percentage of your revenue.
Often, solopreneurs continue with a similar lifestyle even after starting their business venture. Think before making a big-ticket purchase. Because ultimately, you’ll have to repay the amount. It is always better if you can keep your personal expenses in check. Try to cut down your personal expenses as much as you can, during the initial phase. If you can take big steps, like moving to a smaller apartment, canceling memberships that you can do without, etc., it will help you manage your business expenses as well.
Mixing personal and business accounts
Treat your business as a separate entity. Many solopreneurs and freelancers have confessed to not keeping their business and personal accounts separate initially. However, most of them also confessed to paying the price for that.
So, right from the time you plan your business, have separate credit cards, checking, and savings accounts. Having separate accounts will help you in getting a true picture and analyzing your business finances.
It will also help you to calculate your profit and do your tax planning. The IRS has issued guidelines against inappropriate use of business funds. So, you may have to pay more tax if you don’t follow those guidelines properly. Also, as a self-employed individual, estimate quarterly payments to the IRS. It will help you avoid a huge tax bill at the end of the financial year.
Having separate accounts has a psychological effect too. It will help you decide the percentage of your profit that will go to you and what you keep for your business. It will help you have a clear idea about how to plan your business properly.
Not using your credit cards responsibly
You will have to use your credit cards for business purposes. It is advisable to keep separate credit cards solely for business purposes. And use your credit card responsibly. Otherwise, you may incur debt if you can’t manage your newfound line of credit.
Many solopreneurs don’t take into account that they have to pay the interest if they can’t repay the outstanding amount in every billing cycle. Irresponsible credit card usage is one of the worst financial mistakes that solopreneurs and entrepreneurs make. The best alternative to avoid this problem is using a debit card whenever and wherever possible.
However, if you’ve taken out loans to start your business and are facing difficulty paying them off, you can consolidate bills into one. When you consolidate, you can include your credit cards and other unsecured debts as well.
You can consolidate your bills into one payment by taking out a personal loan or opting for a consolidation program. You may ask why you should take out another loan to repay existing loans. Sometimes, it’s the perfect solution. Yes, you need to calculate the amount of your existing loans. and obtain a loan with which you can repay all those loans, at a lower interest rate. Then you just need to make a single monthly payment to repay your new loan. Or, you can enroll in a consolidation program and make a single monthly payment to the consolidation company every month. The consolidation company will negotiate with your creditors and reduce the interest rates and loan amounts. The company will decide on an affordable payment which you need to pay to the consolidation company every month. You will be able to repay your debts within a specific time.
As a solopreneur, it helps a lot when you have to deal with just a single payment to manage your debts and pay them off. Doing so, you can concentrate on other things to flourish in your business, and establish yourself as a successful solopreneur.
Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She has been associated with Debt Consolidation Care for a long time. Through her writing, she has helped people overcome their debt problems and has solved personal finance related queries. She has also written for various websites and blogs. You can follow her Twitter profile.
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