Unbeknownst to some people (those people being me 10 years ago) starting a business takes actual planning. And not just a business plan; although it is helpful to have one of those. One of the most important things we should account for when starting a business is the thing most of us forget to consider. Finances. We always take into account the money we stand gain. I know I did! I had income projections galore. What I did not bother myself with, for some odd reason, was expense projections.
The truth is, no matter how much money your business brings in monthly or annually, your expenses are KING. Meaning, if you make a million dollars your 1st year of business, you're officially a bad b*@!h, however, if your expenses to run that million-dollar business of yours hits one million and four dollars...you're in the red. Let's take a quick look at 5 more of the biggest financial planning mistakes that entrepreneurs make and that you can now avoid because you stopped by HHMonline.
1) No Emergency Fund
As an entrepreneur, you may experience periods of slow business or have unexpected
expenses pop up. Please do not take slow seasons personally as most industries have them. What most entrepreneurs don't have is an emergency fund to help get through those slow seasons. Having an emergency fund that can cover 3-6 months of living expenses can help you weather these events. I know, 3-6 months of expenses is no small feat when most of us are doing our happy dance when we can make ends meet without punching a clock. So, start small. Make sure you have at least one month of expenses tucked away for a slow season. Build from there.
2) No Retirement Plan
We all look at aging differently, but for the most part, no one really sits around thinking about how they will maintain their lifestyle when they get old. I know I'm not looking forward to the arthritis I'm genetically predisposed to. Be that as it may, it is important to start planning for retirement early, especially as an entrepreneur. There are no 401K contributions automatically being made on your behalf when you're your own boss. Research your options and find a retirement plan that works for you and your budget.
3) No Insurance
A few businesses require insurance to protect themselves as well as their clients and customers against theft, damage, etc. For example, if you wanted to open a commercial cleaning business or a moving and logistics business you'd be asked if you're bonded and insured on every prospective client call. Regardless of the requirement or lack thereof, as an entrepreneur and business owner, you’re exposed to more risks than an employee, so it’s important to have insurance to protect your business as well as your personal assets. Of course, having an LLC also protects your personal assets. But, did you know that some insurance companies even help if you experience a loss of incom?. Trust me, it's worth looking into. And don't forget to add the cost of your insurance to your expense projections.
4) Not Diversifying Investments
It quite possibly just got weird for you if you're not in the finance industry. When I talk to my clients about the benefits of diversifying their portfolio, they look at me with this kind but blank glare and usually mutter something along the lines of "Do what you think is best, Marissa. We trust you." While it feels amazing to earn the trust of your clients, the truth is, you need to know this stuff so that you're not relying on anyone to invest the money you've worked hard for. But please don't tell my clients that! This conversation is strictly between me and the girl bosses reading! Diversifying your investments means mixing a wide variety of investments within a portfolio. This strategy reduces risk by allocating investments across different asset classes, such as stocks, bonds, real estate, or cryptocurrency and different categories, such as countries, industries, sizes of companies, and/or term length. According to Investopedia, diversification aims to minimize losses and volatility by investing in different areas that would react differently to the same event. According to me, don’t put all your eggs in one basket and spread your money across different asset classes. This isn't necessarily going to maximize your ROI, but it will decrease your chances of experiencing loss on a large scale.
5. Not budgeting!
Our last financial "no-no" is closely associated with the mistake example posed in the intro of this article. Having a budget can help you track your expenses and stay on top of your finances. It can also help you plan for future investments, prepare for changes in your business such as scaling and expansion, and of course it helps keep track of expenses, so you can make the most of your money. If you're in the planning stages research the software and other tools you'll be using and the cost of them, as well as cost of rent, advertising, marketing materials like your website and business cards, fuel expenses and any other costs you can think of incurring. As your business ages, you'll have a more accurate picture of your expenses which will only make you more financially efficient as a business owner.
Being a boss only sounds like a vacation to those who have never been a boss before. Whether you're planning to start a business or you're in the growth phase be sure to work smarter not harder and always be aware of your financial projections. Subscribe to Her Hustle Magazine for more stuff you should know.
Comments