More business failures result from poor money management than any other issue, and really, it’s no wonder. Most of us are not taught how to handle money. Unless our parents or grandparents sat down with us and had frank discussions about the wise use of money as we grew up, chances are we had to figure it out ourselves while making bad choices along the way.
Bad habits and an improper mindset about money can mess up one’s finances like nothing else, and it affects more than our personal finances. This lack of money-management skills carries over into how we handle and run our own business ventures. Many parts go into managing a successful business, and here are three money mistakes you’ll want to avoid.
Mistake 1: Catching Latest-Greatest Must-Have Syndrome
When your entrepreneur friends or members of the online business organization you belong to are all jumping onboard with the latest tools, training, and programs, it’s hard to resist joining them. While there may be some merit to a new program or tool, it could be to your disadvantage if you’re always chasing after the latest device or technique.
Ask yourself if you really need it at this time. Have you put to use what you already have and know? If not, why not? Will the new subscription, software, tool, or training only distract you until the next new thing comes along or do you have the self-discipline and commitment to implement it right away?
The main issue is that you only have so many hours in a day and so many in a week. If you spread yourself too thin, you’ll never have the quality focused time needed to actually build your business.
Mistake 2: Embracing the Sunk Cost Fallacy
The sunk cost fallacy is what keeps a tourist gambling at a Las Vegas casino on a particular slot machine all day. The machine is on a losing streak, but the player doesn’t dare leave the machine, convinced that at any moment his luck will change. He’s already “invested” hundreds of dollars (and nine hours) and wants a return on his investment. Yet he leaves broke at the end of the day.
If you’ve ever owned a clunker (and most of us have when first starting out on our own), there comes a time when almost every month we’re replacing something on it that just went out; the alternator, the starter, the air conditioner, ad infinitum. And we justify the new expense because we recently replaced all the tires or had the brakes done. At what point do you just go out and buy a newer, more reliable vehicle?
This mistake is too often made in business. You’ve sunk so much money into a program or subscription that hasn’t been working for you (or you didn’t put to use), that you refuse to give it up, even when you know in your heart of hearts that you’re not going to implement it. So you keep renewing the subscription.
Take an honest and thorough look at your finances. What expenses are truly necessary and which ones can be eliminated? Either put a program or membership to use or cancel it. As they say, “Fish or cut bait.”
Mistake 3: Pinching Pennies at Every Turn
The other side of the coin is spending too little on things that would increase your productivity and grow your business. It’s one thing to be frugal and another thing entirely to be a cheapskate. Becoming a successful entrepreneur takes time and money. However, it needs to be money well-spent. Do your homework. Be strategic.
There are many good tools out there that are free or low-cost, and that’s great when you are starting out and have a restricted budget; but as you go along it’s important to set aside money to invest in your business—for high quality programs and products that will bring a return for years to come.
Manage Your Money Wisely
What it all boils down to is good money-management. It isn’t instinctual; it must be learned. If it means taking some finance classes at the local college or business school, do it! Talk to successful small business owners and glean from them what worked and what didn’t.
The key is to be strategic. Avoid the extremes of overspending and underspending. Instead, do what it takes to run your business efficiently and effectively and it won’t be long until it prospers.