There are few greater accomplishments than starting your own business and being in control of your own career and finances. However, entrepreneurs that encounter less than desirable circumstances in their venture can end up under crushing debt and be forced to go out of business — or worse, to attempt to survive bankruptcy. Luckily, by understanding exactly what causes entrepreneurs to experience financial discord, you may be able to prevent the same fate from happening to you.
Excessive Spending
One of the most important steps you can take as a new business owner is to manage your budget and avoid overspending early on. Always keep in mind that your supply should match the demand. If you are just starting out, aim for products that won’t cost you a lot upfront. Keep these rules of thumb in mind: Everything you buy should have a purpose, and only purchase what you can pay for promptly. You should also make sure not to overspend on designing a website, logo, or storefront. While it may be tempting to invest in making sure your business appears put-together with strong, consistent branding, a sensible, well-managed budget is more important than a physical location that screams “luxury.”
High Interest Rates on Loans
Loans and credit cards are often avenues into undesirable financial situations, especially when it comes to budgeting for small businesses. If you decide to use business credit cards or loans to help your endeavor get off the ground, then make sure you read all the fine print and have a plan ready to start paying it back as soon as possible. Borrowed money will not wait for you to start making money to accrue interest: it will do so as soon as it hits your account.
Lack of Organization
Success is built on goals and hard work. When you decide to start a company, that hard work entails organizing every aspect of your life. You need to track and record everything and compare costs for every purchase and investment. Doing your homework and making a plan can save you valuable time and money.
Relying on the Business Before It’s Ready
If you are a new entrepreneur, never rely on your business for income from day one. It can take months or even a couple of years for your new venture to start earning enough profit to support its own costs, let alone yours. Far too often, people will quit their day jobs and use all the money earned through their business to pay for basic living expenses and their lifestyle. Then, after a few months, they realize they can’t make payments on their loans or purchase new product stock. Within a couple of months, their business has died off and they are left with mountains of debt without any way to pay for it.
Starting a Business with No Savings
One of the biggest mistakes is spending money you don’t have. If you can’t support yourself with your current job, then there is a good chance that it is not the right time for you to start a business. Doing so will only put you in substantially more debt and cause you to crash before you can even take off.
Get Informed
The best thing you can do is study up: do as much research as possible into the process of becoming an entrepreneur. You have the internet at your disposal and millions of people who have records of success that can help. Study up today so you can be successful tomorrow.
Author Bio: Katie Tejada is a writer, editor, and former HR professional. She often covers the latest developments in HR, business communication, recruiting, real estate, law, finance, and investing, but also enjoys writing about events, decorating trends, and travel.