Accounting has never been my thing. I would much rather spend money than save money, and I like to reward myself for my hard work. I’ve never had a poverty mindset in my life because I know I can always make more money. But as my business has grown and scaled up, I’ve had to learn how to control my finances, business expenses and payroll.
I tried to do my own accounting for many years, but I constantly made mistakes. I didn’t trust anyone else but myself to handle my accounting, which didn’t make sense because math had never been my thing in the first place! By attempting to do my own accounting and making avoidable errors, I was actually hurting my bottom line, not helping it.
As D2 Branding continued to grow and make more money, I knew it was time for me to seek the help of a financial expert who could help me with accounting and budgeting instead of trying to do it myself. It was such a relief to pass off my accounting needs, investments and retirement fund to a trusted financial advisor who could guide me in the right direction. I don’t have to think about what to do with my money anymore, I just need to make the money and he will tell me what I should do with it. With the help of a financial advisor, I have a better understanding of where my money is, how much I’m making, how much I can take home and how much I need to save than I ever had before.
The financial aspect of my business is probably the area I’ve made the most mistakes in along the way —mostly small, unintentional errors with money than can be detrimental if you don’t come up with the right solution. Many of the entrepreneurs I work with struggle with their finances as well. I talk to entrepreneurs who have no idea how much money they should be taking home or if they can afford to hire someone to work under them, which can prevent them from scaling their business up.
After reflecting on my own struggles with finances, I came up with the six most common mistakes I see entrepreneurs make with money.
1. Hiring in advance of revenue
When you first start your business, chances are you’ll need to suck it up and do all of the work — even the things you don’t like to do — until you bring in enough revenue to hire someone. In my experience, it’s not a good idea to go into debt before you launch. Unless you have an expensive buildout (like a brick and mortar business) it’s not necessary to hire people before you launch. That’s the reason why I coach people to create online businesses — you’ll have no overhead costs as you try to get your business off the ground.
In my opinion, it’s better to start making money and then hire your first employee. Once you start getting some sales, you can hire a virtual assistant who you pay by the hour or an accountant who helps you navigate your finances. Until the money starts rolling in, you’ll be doing all of that work yourself, but think of it this way: You’ll have no problem training the person you eventually hire because you’ve been in the trenches, doing the work yourself.
2. Borrowing money when you don’t really need it, but when the bank is willing to lend it.
If you don’t need to take out a loan, borrow money, or get an investor, don’t do it. It will only add extra pressure and stress. If you can go without a paycheck for awhile, do it — that’s what many bootstrapping entrepreneurs have to do when they’re first starting out. Taking out a massive loan to pay yourself $100,000 a year isn’t a good idea. Start making money first, then pay yourself. Make sure not to borrow unless you absolutely need to to pay for your operations in the beginning.
3. Not paying payroll taxes on time.
Pay your taxes, period!
I didn’t pay quarterly taxes during my first year of working as an entrepreneur, and it was brutal. I owed almost $40,000 at the end of the year because I didn’t plan ahead. We had to take money out of my husband’s $401k and suffered major penalties because of it. I learned from this experience and hired an accountant who helped me set money aside each month to pay for quarterly taxes, which made it much more manageable.
If you get behind on your taxes, the IRS will come knocking at your door and you could go to jail. Stay up-to-date on your taxes and enlist the help of a professional — you won’t regret it!
4. Pricing too low.
Charge what you are worth!
I was coaching an amazing entrepreneur who sold a weight loss product online for $7.77 a month. I was shocked — you can barely get a Starbucks drink for that amount! People weren’t taking her seriously because the low price made her program seem less valuable. After I met with her, we decided to start charging $777 a month, and then she started to get sales. She was able to scale her business up and hire additional employees to help her grow the company.
If your pricing is too low, there’s a preconceived notion that your product or service must not be very good. Being the cheapest option is not always the best idea. Don’t focus on being the cheapest, focus on being the best. When you have an undeniably awesome product, the price will never matter.
5. Permitting accounts receivable.
Don’t permit accounts receivable, meaning you allow people to owe you outstanding money. It’s just not worth it. When I first started my business, I had four clients who owed me money and it added up to almost $20,000. I spent so much extra time hounding them to pay me because I had already paid my employees and freelancers for their work, and in the end, I ended up never getting paid back for some of the services we provided. After that experience, I knew my model needed to change.
Moving forward, I only took payments up front for services. I had my clients’ credit cards on file that I charged with automatic monthly payments. This way, I never have to talk to the client about payment unless their card doesn’t go through. If their card declines at the beginning of the month, we don’t do any work until we’re paid. Now, I have no accounts receivable and it’s been such a relief. I’m firm about this policy, and my clients respect it.
6. Relying on one major source of revenue.
You should not have only one revenue source. You need to diversify your revenue in case one area takes a hit. For example, a few months ago Facebook and Instagram were down for hours. That’s an entire day where all of my clients ads didn’t run. We both lost money, but luckily, I have other revenue streams, so it wasn’t too detrimental. But what if one day, Facebook shuts down for a day, a week or all together? We can’t risk relying on something for all of our revenue that’s so out of our control. This is why we are diversified — business coaching, SEO, web design, graphic design and social media are all streams of income for the team at D2.
If you’re looking to start a business, or you own a business and find yourself struggling with your finances, avoid these six mistakes and be on your way to financial freedom.