The Biggest Money Mistakes Entrepreneurs Make
So, you took the plunge and started your own business. Congratulations! A word to the wise: here are four of the biggest mistakes entrepreneurs often make — so you can avoid falling into these same traps.
1. Investing in the Wrong Areas
Your business is your baby, and you want it to succeed. You might feel compelled to spend money on items or services that appear necessary. Tricky to spot at first, these expenses present themselves as essential to your success — but in reality, they drain your money pool. Let’s look at some of the most common mistakes.
Frank bought high-tech equipment for his team, even though everyone already had laptops.
Oftentimes, tech equipment like brand-new laptops or headsets seem practical — and they can be — but don’t jump the gun. Investing in expensive tech comes with time once you have solid funds to support it. Keep your purchases to items that are vital to the company’s success and within budget.
Pauline hired 3 salaried employees, even though her company isn’t yet bringing in the funds to sustain
Salaried, and even hourly, employees will take a huge chunk out of your funds, and usually they’re not necessary until much later down the road. Instead, automate or outsource your projects at a much cheaper price.
Reksha rented office space, even though her team of five people all have offices in their homes where they can
Don’t preemptively rent office space when there isn’t yet a need. Odds are high that your team is small, especially at the early stages. Save money by working remotely — in homes, coffee shops, or free co-working spaces — until you’re forced to invest in a communal workspace.
“Before investing in your business, make a list of your essential needs and stick to them when purchasing.”
Andrew Priobrazhenskyi, CEO at DiscountReactor
2. Not Taking Advantage of Discounts or Free Trials
Let’s talk about discounts. They’re not just for finding a cheaper laptop case. When it comes to your business, it’s a mistake to not take advantage of discounts, free trials, or credits for key software, tools, and more.
“Think hard about what software you truly need, and try to get by with freemium versions or totally free alternatives where possible. It’ll save you hundreds each year.”
John Ross, CEO at Test Prep Insight
Take cloud storage. Cloud-hosting data storage simply means that digital data is stored on a remote server or “cloud,” protecting you from loss of data. Which cloud storage is cheapest? Here, it’s all about how savvy you are. Services like Google Cloud and Amazon Web Services are the best-in-class for a reason, but make sure you take advantage of their free trials or free tiers if you have low usage requirements. Check to see if some of the services you purchase (such as your internet) come with limited amounts of free cloud storage.
Say you want an easy communication tool like Slack, but you don’t want to pay the price. Did you know that they offer free trials or a free version? An advantage of being a small business is that you don’t have the same needs and requirements as large-scale companies. Make the most of your business size with free tool versions.
In your personal life, you likely have a credit card that earns you rewards. Do the same for your business. Take the time to research and pick a card that earns points where you’ll need them most (whether that’s for flights, hotels, or other business expenses). Those points will add up over time — and could end up paying entirely for big expenses.
3. Not Applying for Tax Credits
If you don’t yet know about business tax credits — boy, are you missing out. Tax credits are a certain
amount of dollars you paid for something, such as health insurance, that you can deduct from the dollar amount you
owe in taxes. The trickiest part of tax credits is understanding which apply to your business. Some popular tax
credits include the Earned Income Tax Credit,
Work Opportunity Tax Credit, Credit for Small Employer Health Insurance Premiums, Research
and Development Tax Credit, and many more. You may have to put in a little work to see which you can use — but the
effort is well worth it.
On the same train of thought, keep in mind that many business expenses are tax-deductible, including accounting fees, commissions and sales costs, insurance, rent, and more. The IRS states that a business expense must be both ordinary and necessary to qualify — so we recommend exploring the information they’ve compiled for small business owners and the self-employed to learn more.
4. Not Investing in Proper Money Management
It is highly recommended to keep your personal and business finances separate. Failing to
distinguish between the two is not only a bad idea operationally, but it also can put your personal assets at risk.
Those who neglect to separate their finances will find it difficult to build business credit (vital to securing loans later on), and
will miss out on business tax deductions. Don’t be a part of the percentage who use the same bank account for
business and personal finances — and while you’re at it, try multiple business bank accounts.
Don’t forget the importance of creating a budget you can stick to. Failing to properly budget and neglecting to establish and maintain an emergency fund can have disastrous consequences. You may end up with too little cash, find yourself in debt, or fail to make a profit. Having emergency funds is a big part of smart budgeting. As we’ve all learned from the last year, it’s important to prepare for the unexpected. Open a high-yield savings account to grow your fund over time.
As for bank fees — it’s all about what bank you open an account with. Avoid brick-and-mortar banks. Online banks are usually the smartest route if you’re looking to save money on fees and capitalize on your funds, because they often have low or no fees with competitive interest rates.
Our Two Cents
Nice work. You made it to the end! They say preparation is key — so staying cognizant of these common money
mistakes will set your business up for success.
Our final thoughts? Smarter money management is crucial to a profitable business. Let Axos Bank lead you to smarter banking.