Money Blunders That Entrepreneurs Must Stay Away From

Almost all independent entrepreneurs are aware of the fact that the odds of their company becoming a major success are stacked against them. Depending solely on the company profits for their financial needs is not exactly the best retirement plan. So, it is very important to set up various sources of revenue on the side. To put it simply, entrepreneurs must build their companies on a long-term basis but invest their personal income with short-term financial goals. Here are some challenges that every entrepreneur will face in their bid to invest and the blunders that they need to stay away from –

Over Investing and Not Saving Up

It’s almost a set formula in the small start-up community –invest every second and every dime into the business. Only then can one be successful. Even though that attitude is commendable, in most cases it is not practical. With rapid advances in the field of information, technology and customer business relationships, the guarantee of a healthy return on that investment is almost minimal. Simply speaking, investing everything you earn back into your company is a major blunder. As a matter of fact, treating the business as a solitary investment option is the definitive “anti-diversification” policy and diversification is the essence of being financially successful. Saving money may be the least exciting investment option yet it is the safest in this volatile market.

Investing Solely in Your Own Field of Expertise

The metaphor ‘putting all your eggs in one basket’ perfectly sums up this common investment mistake that most entrepreneurs end up making. When looking for options of investing, it is natural for an entrepreneur to feel familiar with their own sector. However, comfort must never be interpreted as a guarantee of success. Just for the reason that one knows a particular sector well, success and the chances of striking financial success is not guaranteed at all.

Sure, some investors do get lucky, but the opposite is also possible. Diversifying your investment interests, gaining information from experts from other industrial sectors and carefully investing in businesses that have great potential is the best way.

Not Making the Most of the Tax Privileges that Start-ups Have

Particularly during the first five years of the start-up’s foundations, there are a lot of helpful tax-savings options that entrepreneurs must make the most of. One such overlooked move that is designed for businesses that are recording losses is the Roth IRA conversion policy. Typically, when shifting from a traditional IRA (Individual retirement account) to a Roth IRA, stockholders have to pay a certain amount in tax. But if the business owner is facing a loss, the conversion can be done tax free by counter weighing losses from the company against revenue from the conversion transaction. End result – the entrepreneur gets to move his/her tax deferred IRA reserves to a free-of-tax Roth IRA without having to pay any taxes.

These were the most common money blunders that entrepreneurs must stay away from. It is always advisable for entrepreneurs to keep learning about these potential threats and lucrative loopholes.

Summary

All entrepreneurs have various lucrative opportunities for investment. However, entrepreneurs must establish different sources of revenue and stay away from certain investment blunders. For instance, they should avoid overinvesting and instead save more. Again, start-ups should also make the most of the tax privileges at hand, along with diversifying their finances.

Reshali Balasubramaniam

Head of HR, HR Counselor and adviser at https://work.lk/. Do you offer a Service? Signup for an account at work.lk