Starting a business can prove to be a rewarding venture. It can provide a source of income while addressing a want or need that society currently has. In order to make this dream become a reality, the business owner has a lot of responsibility on their shoulders. Not only will they have to oversee business operations, but they have to oversee a lot of the financial aspects of the business as well.
Millennial business owners may be prone to making a lot of mistakes as well. It is one thing to be young and ambitious, but wisdom must take precedence before making certain decisions. Here are five common financial mistakes that millennial business owners often make.
Not Having Separate Personal and Business Accounts
There is no way around this issue. Keeping your personal finances separate from the finances of the business is essential. If these two prices are conflated, the business owner will have to pay a heavy price.
On the surface, it appears convenient to have both expenses into one account. However, business owners, especially millennial business owners should commit to having a separate credit card, savings and checking accounts before the business starts bringing in revenue. Once you do this, it will be much easier to do accounting for business expenses and planning for budgeting and tax estimates.
In addition, having separate accounts will also allow you to see a clearer picture of how well your business is doing financially. The overlap is common with the conflation of these prices, and you may get an inaccurate sense of where your business stands as a result.
You also do not want to deal with the IRS and their strict rules regarding inappropriate personal use of revenue earned by the business. The biggest price you will have to pay, however, comes in the form of the potential damage that is done to your credit score. Should the worst-case scenario happen to your business, your personal score will take a nosedive along with it.
Saving is a financial habit that you should be implementing in your personal life. However, some things that millennial business owners neglect to consider when starting the business is saving.
No matter how successful a business may appear to be on the surface, emergencies may happen sooner or later. There will inevitably come a time where extra money may be needed to purchase the necessary tools for the business.
If you ask any financial planner, they will tell any entrepreneur that approximately three months’ worth of expenses needs to be placed in an emergency fund for both personal and business expenses. Unexpected costs will attack a business at any time, and if you don’t have the necessary money to get what you need, it can delay operations and expenses for a significant period of time. A shortage of money never has a good outcome when running a business.
Making Large Personal Purchases
Even if you have successfully separated your personal and business accounts, there will be scenarios that emerge where you may have to go into your personal finances to properly fund a business expense.
The first year of any business is an essential part of the company’s lifespan. It can determine whether or not it will succeed or fail. Between the number of unexpected learning opportunities and unknown variables that will be coming your way, roadblocks will be inevitable. Failures are also common, and unfortunately in the business world, those failures often come with a hefty price tag.
If you are thinking about becoming a business owner, you cannot afford to make large purchases on an impulse. Rushing out and purchasing a home, car or another large expense can severely hamper your ability to pay a business expense if it’s needed. In addition, this can also interfere with your ability to pay yourself.
A large number of personal expenses have a lot of negative setbacks, and it will be more important than ever to be wise with your finances in your personal life. One such thing that can affect your personal finances is credit card debt, and Pine Advisors have resources that can help you in that regard.
Getting Credit Card Debt While Expecting Revenue
Having credit card debt has a litany of consequences that come with it. In terms of what repercussions, it can have on a business owner, the effects can be devastating. Millennial business owners often times put expenses on a credit card because they are expecting revenue to come in. As the old saying goes, they are essentially putting all of their eggs into one basket.
Credit cards have become dangerously convenient to use. It can cause a large number of unwise decisions to be made, and lines of credit can be easily mismanaged as a result. Business owners often fail to understand that expenses are compounded and interest increases with the use of a credit card.
Irresponsible credit card use is considered by many experts to be one of the worst financial mistakes that any entrepreneur can make. If you are looking for safe, convenient use to make a purchase, a debit card is a better alternative. However, it is ideal not to use any personal means to pay for business expenses at all. If you happen to have credit card problems that need salvaging, Pine Advisors can help you to a great degree.