4 Tips For Entrepreneurs on How to Avoid Financial Pitfalls

How to Avoid Financial Pitfalls

Financial independence is empowering and is often viewed as proof of professional success. However, in today’s hyper-competitive market space, most entrepreneurs struggle to maintain their financial independence.

The struggle is further compounded by the fact that the current market space is extremely volatile – though it’s always been this way and not much is going to change in that regard.

Digital and technology advancements are disrupting markets and the competition from start-ups and big brands can squeeze the market space for entrepreneurs forcing them to make financial mistakes that can be very damaging.    

Some people believe Apple and Google are too big, for example, since they continue to buy smaller players which ends up stifling innovation but let’s not dwell on this.

Are You in Control of Your Financial Destiny?

As an entrepreneur, you are in complete control of your financial destiny. You can achieve financial independence and be successful on your own terms. Here are four financial goals that you should focus on if you want to write your own success story which is not something Jussie Smollett has done but that’s another topic.

Build on Your Cash Reserves

Some entrepreneurs end up investing every single penny they earn into their business in the hopes of reaping rich dividends at a later stage. A few don’t even give a second thought to building cash reserves in case there is an emergency which does not make any sense at all.

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Companies like this with managers that are this derelict don’t ever make it to the second inning, certainly not the third inning.

It’s a mistake if you don’t properly plan for the future – always save some cash for a rainy day. Even the best of businesses will have a rainy day at some point.  

Related – Ways on how to relieve yourself from financial stress and burden

Plan Ahead for Your Year-end Tax

Don’t wait till the last minute to file your year-end tax. Especially if you don’t want it to impact your cash-flow. Track and organize all the necessary financial information in advance and keep your books in order if you want to avoid making last minute mistakes or getting fined.

Ensure Positive ROI for all Your Investments

One of the most important challenges for an entrepreneur is to ensure that every bit of investment delivers a positive ROI. In an effort to maximise their business reach, most entrepreneurs end up spending money that they don’t have which seems to be OK for the city of Chicago or the state of California, but no one wants to have their business end up being broke like Greece.

This does not mean you are going to be able to save up money like Microsoft or Apple because those are vast fortunes but it does not means you should be reckless with your money. If you have to get your building painted (interior as well – morale matters) or buy another work truck to help expand your business you want to have that money when you need it.

As a result, their business operational costs start soaring. This is when they make the mistake of attempting to economise on costs and investments that are actually salient for the business!

Try and avoid both extremes – the best way forward is to always test the potential of your investments by quantifying your gains.

Prioritise Processes and Tasks

If you want to stay ahead of your finances, you have to put into place a system or SOP for every single task starting from inventory to invoices and spending or receipt management.

This provides your team and employees with clarity and helps in building greater transparency and accountability into your business – not just for now, but also for the future.

Key Takeaways

Running a successful business can be exhilarating. The energy and excitement can push you to pursue your next big invention or creation and expand your business horizons. Look at Elon Musk – he has two amazing things going for him – one is SpaceX and the other one is Tesla. He’s a human being like everyone else – if he can do it then so can you.

However, while you are busy doing all of this, make sure you have an eye on the financial health of your company. One small mistake could leave you with a huge hole in your pocket and with your confidence relatively affected.

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