You're going to start your own business, and it's safe to say you're excited about what the future holds. You have dreamed of this day for a long time. You don't want to make any mistakes. You know that the business world is unforgiving and that many businesses fail in just the first year or two.
One thing to keep in mind is that many new business owners make critical financial mistakes that they later regret. Some of these include:
- Taking on too much debt prior to earning. Yes, you may need to spend money to make money, but it's dangerous to put yourself in a position where you have to be wildly successful right away or you will not be able to pay off all of the debt that you have.
- Underestimating how long it will take to succeed. Some business owners seem to have this idea that the first few months may be hard, but they can get through it. Remember, for many businesses, financial success takes years. You have to plan accordingly.
- Buying things that the business does not need and cannot afford. You need to pick your battles when deciding what you need and what you want for your startup. Maybe you have this dream of giving your employees company cars. You may get there eventually, but buying a small fleet of cars before you launch ties up a lot of your capital in expenses that have very little return.
- Buying things that you do not need and cannot afford. Owners also make the mistake of buying into the persona of the young, successful business owner instantly. They want to buy a new car, a new home, a closet full of new suits and much more. They draw a heavy personal salary, rather than investing the money back into the company.
- Forgetting about taxes. No one pays your taxes for you as a business owner. You must put aside money to cover those costs.
- Spending everything without considering a future decline. Maybe the launch goes well, so you decide to start making all sorts of purchases and expanding the company. Is that really wise? If you spend every cent that you have, you can't cover the costs if business dries up or you have a few months with below-average sales.