Self-employed, entrepreneur, or small biz owner… you’ve taken the road less traveled. You are freedom-oriented and independent. You’ve traded the so-called security of a J.O.B. for the opportunity to pave your own path.
I understand. After a job in banking and several years working for a typical financial planning firm, I also got “the call” to start my own firm. I no longer felt that “typical” financial planning advice allowed me to do what was BEST for my clients. I watched people lose FORTUNES in the market, only to be told to just keep doing the same thing with their dollars! And I saw people frustrated that there were no other options.
(That’s how many people become entrepreneurs; they develop a passion to solve a problem!)
I saw that people can build wealth WITHOUT the Big Banks and Wall Street firms. An alternate path had been modeled for many decades, even centuries by SUCCESSFUL ENTREPRENEURS who had built sustainable wealth… long before “Financial Planning” even existed.
Eventually, I codified the principles and strategies that have been used by wealth-builders over time. I coined this philosophy “Prosperity Economics,” and it became the foundation for Partners for Prosperity.
Not only am I an entrepreneur myself, but I’ve worked with thousands of entrepreneurs over the last two decades. Entrepreneurs are my favorite people in the world. They’re creative, caring and passionate. And sometimes… they make BIG MISTAKES with money!
Below are 9 common mistakes that you want to avoid like the plague. These are mistakes common to MANY people in all walks of life. However, they can be especially disastrous for entrepreneurs, business owners, and the self-employed.
Mistake #1: You haven’t made saving money a priority.
Your “emergency fund” is a credit card. You have no regular, habitual, automatic way to save money. And you have no cash for emergencies and opportunities!
Let’s face it: business can be unpredictable. If you wanted a predictable income, you’d have a job instead of a business!
That’s why it’s EXTRA important that you, as an entrepreneur, SAVE MONEY.
Ideally, you will have an ample cushion of savings before you start your business. But business callings don’t always wait for the “right” time. That’s OK—just start where you are.
You may have “lean years and green years.” Years when you sock away cash, and other years when you raid your stash to stay afloat or expand. Make saving money an automatic habit, and your savings will be there to SAVE YOU when you need it!
DO THIS: Make saving money consistently a priority. Build an emergency fund of 6 months’ expenses, then save more for opportunities!
Think you can’t save? Listen to this inspiring story from Lisa Nichols and you will never believe that again!
Mistake #2: You aren’t charging enough to be sustainable.
Too often, entrepreneurs fail to cover even the true costs of doing business when they price their products and services. The more they sell, the further behind they get!
Many entrepreneurs feel they are profitable if they are “making money.” Money comes in alright, but then it seems there is never enough to pay taxes, insurance, or actually SAVE some of it! Ultimately, if your business doesn’t support your whole life, you’re going backwards. You need money to:
- pay all your personal bills
- pay all of your business expenses
- pay all of your taxes
- cover your insurance premiums
- save for emergencies and opportunities
- invest for the future
- invest in mentorship or education
- tithe or give
- pay off debts
- take vacations or sabbaticals
- “miscellaneous expenses” for entertainment, eating out, etc.
- plus money to take care of yourself with healthy food and wellness care.
Get honest with yourself about the money that flows in and out of your life and business. It may be uncomfortable to charge more, change your offerings, or weed out clients who can’t afford your services. But for your business to survive, it’s necessary.
DO THIS: Price your products and services so that your business can be sustainable over the long haul.
Mistake #3: You/your family aren’t properly protected.
It breaks our heart to hear about business owners who aren’t properly insured. You probably know of situations such as these:
– A business owner passes away and leaves their family with a big financial mess.
– An accident or medical emergency arises, and an entrepreneur is not properly covered.
– A business partner or key employee passes away, and the business dies next.
– People have to start “go fund me” campaigns in the middle of personal tragedy because they weren’t prepared for a worse-case scenario.
Make sure you have all of the insurance coverage you need. If you have adequate savings, you can choose high deductibles, which will lower your premiums.
We also recommend a special kind of life insurance that can help you:
- Beat bank rates by 2-10X on your long-term savings.
- Guarantee a legacy for your heirs or the causes you care about—no matter how long you live.
- Use your savings as collateral for affordable business financing (no qualifying or credit check required!)
- Protect the “human life value” of breadwinners, parents, even your children.
- Get “three for one” coverage for permanent life insurance, long-term care needs, and cash for a terminal illness.
DO THIS: Put first things first and protect the ones you love.
Mistake #4: You’re paying too much in taxes.
You’re probably not claiming all of the deductions you could be. You might be paying penalties for late payments or filings. You might not have the right business structure, perhaps operating as a sole proprietorship when incorporating could lower your taxes.
Money lost to taxes is gone forever… as well as the additional dollars you could have earned with it! So get good advice on reducing your taxes and follow it. One great resource is my friend Tom Wheelwright’s WealthAbility podcast.
DO THIS: Pay more attention to how much you KEEP than how much you “make.” What you keep is what matters!
Mistake #5: You’re making common bookkeeping mistakes!
Early on in a small business, it’s typical to try to do everything yourself. However, mistakes can be costly—especially when it comes to your money!
If you like bookkeeping, are adept at it, and have time to do it, go for it. But many business owners would be better served delegating bookkeeping to a professional.
Another option is to have a professional bookkeeper help you set up your own bookkeeping system properly so that you or an assistant can take it from there.
Either way, it’s impossible to make the proper DECISIONS about money if your bookkeeping is inaccurate, not up to date, or non-existent!
Carrie, my own bookkeeper, is essential to our success. She shares her wisdom in this excellent article: “9 Bookkeeping Mistakes Even Smart Business Owners Make.”
DO THIS: At the very least, get professional help to set up your bookkeeping system properly.
#6: You put your money at risk.
This happens in two ways. First, you INVEST before you SAVE.
Even though we tend to use the terms interchangeably, saving and investing are NOT the same thing! Saving is about storing and growing your money where it is SAFE and it can be accessed if needed. Saving can be long-term (for a lifetime) and short-term (to be prepared for emergencies or your next vacation.) Investing is about getting a RETURN on your money in the form of asset growth and/or cash flow. It is usually mid-to-long-term in commitment.
The problem occurs when entrepreneurs invest when they lack savings. The money goes into the stock market, 401(k), or a real estate investment that is not liquid and cannot be USED for opportunities or emergencies!
If all you have is “investments,” and you need cash, you have to disrupt your investments. You may have to sell stocks or mutual funds at a loss if prices are down, or pay taxes and penalties. Having proper SAVINGS in place actually protects your investments!
The second way that people put their money at risk is by leaving most (or all!) of their dollars at the mercy of the roller-coaster ride! This is a common mistake that nearly ALL investors make. We’re conditioned from our very first job with a 401(k) to give a portion of our money to Wall Street, without asking too many questions. (Kate Phillips and I go into this in detail in our complimentary ebook, Financial Planning Has Failed.)
Investment risk is especially detrimental to business owners. You see, if the stock market or the economy takes a plunge, that’s usually bad for business. So your business income and your investments could both take a big hit at the same time!
A better strategy is to save and invest in financial vehicles that are non-correlated to the stock market. It’s fine to have stocks, just don’t put all of your eggs in one basket. Business can be unpredictable. You don’t want your investments to be unpredictable, too!
DO THIS: Save first, then diversify outside of the stock market and aim for more predictable, reliable returns. (We’re happy to help.)
#7: You’re not investing in yourself!
Chances are, you have been taught that “assets” and “investments” exist in bank accounts, retirement accounts, precious metals and real estate. Few of us are taught the truth: YOU are your best investment! YOU are likely the biggest bottleneck in your business—and your business’s greatest potential asset.
When you invest in yourself to—
- Learn new knowledge that can improve your business or help you charge more
- Up-level your skills (especially marketing and sales skills, which impact your bottom line)
- Surround yourself with people who make you better
- Gain personal skills and confidence that help you up-level your life
- Improve your health, vitality and energy
—You are improving your ability to earn and expand your income.
DO THIS: Read The Last Safe Investment: Spending Now to Increase Your True Wealth Forever by Michael Ellsberg and Bryan Franklin.
#8: All of your money is locked up in a retirement fund.
To clarify—it’s a GOOD thing to have an IRA, 401(k), or other retirement fund! The problem comes when virtually ALL of your investments are in accounts that can’t be accessed until you are 59-1/2 without taxes and penalties.
As a business owner, you want control over your own money. You might need cash to upgrade your business, carry it through a slow season, or improve your marketing.
If your dollars are in mutual funds locked up in a retirement account, you can’t invest in your OWN business… you can only invest in other people’s businesses on the stock exchange! (Kind of crazy, right?)
If you still have a job and receive an employer match, we recommend investing ONLY to the match level, then investing elsewhere where your dollars won’t be locked up.
DO THIS: Keep a portion of your money accessible so that you are prepared to invest in yourself and your business.
I also recommend this article from my friend Garrett Gunderson: “Thirteen Reasons Why Your 401(k) Is Your Riskiest Investment.”
#9: You wait too long to get financial advice or professional help.
Are you a lone wolf or a do-it-yourselfer? Many entrepreneurs are. Sometimes, that stops us from getting the help we need.
There are other reasons why you might be avoiding getting financial advice:
- You’ve got “trust issues.” You’ve been burned in the past by the market or a planner.
- You have “financial shame” and you feel you should be much further along financially.
- You’ve heard about required minimums and you don’t know if you have enough to work with.
- You think you’re doing alright on your own, even if all your money is in the stock market and subject to huge risks.
- You just don’t know who to contact if you have financial questions!
DO THIS: If this describes you, I invite you to contact us for a complimentary consultation.
There’s no sales pitch—just honest advice, answers to your questions, and personal assistance if there is something we can help you with.
And whether or not you feel ready to book an appointment, I invite you to sign up for the complimentary resources in our Prosperity Accelerator Pack. You’ll receive an ebook, an audio and a video that will help you learn:
- What’s WRONG with typical financial planning and advice.
- The Prosperity Economics solution—and why it is a better alternative!
- What the 7 Principles of Prosperity™ are and how to apply them to your finances.
There is a different, better path to wealth… one that can give you more financial STABILITY. A way that can help you prepare for “green years” as well as “lean years.” A way to keep more of YOUR money in YOUR CONTROL!
I hope this article has been helpful to you. I look forward to supporting you on your unique path to prosperity.
Kim D. H. Butler
Founder, Partners for Prosperity
Registered Investment Advisor, serving clients in all 50 states
P.S. Make sure you take action!