As an entrepreneur, you’re cut from a different cloth from people who like the predictability of working for a corporation. You’re attuned to your passion. You’re optimistic about how everything will work out; and you may even be a reverse paranoid, believing that misfortune shows up as a life lesson for your preordained success.
When running your own business here are 5 common mistakes entrepreneurs make when it comes to earning, spending and handling expenses:
Dumb Mistake #1: You have no interest in accounting.
You’re an entrepreneur because you like to make money, but this doesn’t necessarily mean that you’re automatically interested in managing it wisely, too. In fact, making and managing money call for different skillsets.
If you’re good at making money it’s because you’ve found your vision and are pursuing your passion. You are then converting this idealism into making money by up a business, and growing it through marketing and sales.
While making money is exciting, managing money, by comparison, is dull. Despite this disinterest, you still have to be able to understand accounting basics and spend time interpreting balance sheets, income statements, and cash flow statements. You also have to keep track of inflows and outflows and distinguish between investing in assets and squandering money on liabilities.
If you don’t take an interest in accounting, it will be difficult for you to get a loan when you’re ready to grow your business. A banker will not be able to make sense of your figures. After sorting out expenses and liabilities, their recalculations might show your business has a negative cash flow.
This obstacle to your success can be resolved by either learning how to using accounting software or hiring an accountant.
Dumb Mistake #2: You lose business travel receipts.
As an entrepreneur you will have to spend money on food, transportation, and lodging, as well as many incidental expenses when going on business trips. If you don’t keep track of your expenses, you won’t be able to keep a sensible paper trail. You will lose money because you won’t include your expenses when you bill clients for the work you’ve done for them that involved travel expenses. If your business trip was not done on behalf of your client, you will still lose money that could be used as a tax write-off.
This obstacle to your success can be resolved by using expense management software. You can upload photographs of your receipts from your cell phone as they occur while entering credit card expenses and travel information automatically into your corporate expense management software, you can quickly stop this unnecessary financial loss.
Dumb Mistake #3: You have no system for account receivables.
As an entrepreneur you will need to have an accounts receivable process to collect money.
This obstacle to your success can be resolved by following this simple process outlined by Barry J. Moltz in an article in Entrepreneurship.org:
“Before you do the work, ask your customer if there is anything you need to do, like providing your tax ID number, to get set up in their system. When the first bill is sent, call the company to check if the bill was received, and ask when it is scheduled to be paid. Right before it is scheduled to be paid, call again to see if the check was sent. If you find it did not make this “check run,” then ask when it will be sent.”
Dumb Mistake # 4: You commingle personal and business finances.
It’s easy to get credit cards mixed up when running your business, but salary and distributions should only be on a business account. This avoidable mistake can make your accounting much harder than necessary.
This obstacle to your success can be resolved by keeping personal and business cards in different parts of the wallet.
Dumb Mistake # 5: You still live paycheck to paycheck.
If you’re paying all your business expenses as go but not building a reserve fund, you’re not really running a business. You have merely substituted getting a paycheck from an employer to getting multiple paychecks from clients.
Your business can only grow when you have cash reserves.
There are two reasons why you need a cash reserve:
First, a cash reserve will help you handle a financial emergency. You may experience a crisis if a few clients pay late or don’t pay at all. A sudden negative cash flow will throw your business venture off course. Instead of spending your time bringing in more business, you will spend it scrambling to pay off your debts.
Second, a cash reserve will help you take your business to the next level when you are ready. A time will come when you will need the funds to grow your business. Perhaps you will need to take a few courses to upgrade your skills. Perhaps, you will need to hire your first employee to handle the increased workload. A time will come when you will need money to grow your business.
This obstacle to your success can be resolved by aside a lump sum in a savings account and then contributing to it on a regular basis.
Above All, Take Action
If you’re making one or more of these mistakes, you should take corrective action. Ideas have no value unless you act on them. When you look back on your entrepreneurial journey, you’ll be able to see a direct relationship between your success breakouts and your willingness to take timely action.
