There’s no way to start a business without taking financial risks. The idea of going it alone in itself is about the riskiest thing most people could imagine. For one, it means kissing goodbye to regular paychecks. As if that weren’t enough, it also involves piling large sums of money into an as yet unknown entity. This is by no means a sure bet in any way.
But, as with any game, there are levels of risk you should and shouldn’t take. Pushing the boundaries is essential if you want to emerge victorious. But, taking things too far could lead to your undoing before you know. Think of the business board as a game of Checkers. You have to put your pieces out there to provide opportunities for yourself. But, leaving the safe sides of the board at the wrong time could lead to loss in an instant.
That’s enough with the board game metaphors, though. You may well be wondering about the business equivalent. Given that money is the primary risk factor, it’s always your central player. Read on to find out about the moves you should never make with it.
Putting business finances against your name
If this is your first business, you might not think twice about putting work finances in your name. All the better for achieving things like business loans, right? The issue is, pitting business finance this way means failure here will be a black mark against your name. That could lead to your struggling to get credit without turning to methods like debt consolidation and bad credit credit cards. You’ll even find that simple things, like getting a mortgage, become near enough impossible to you. All because you took an unnecessary risk.
To make sure the above doesn’t happen, register your company as a separate entity as soon as possible. By forming something like an LLC (limited liability company), you can rest easy your business and personal finances stand on their own. This means that no business failure can claim your savings or personal possessions. Instead, the business itself will become bankrupt, without damaging a hair on your credit rating. That’s good news for both your personal life and any future enterprises. And, it’s a step you can’t afford to skip.
Not paying yourself
Many entrepreneurs make the mistake of not paying themselves in the early months (or years). Some even see this as an admirable thing to do. But, we’re telling you now that not paying yourself a penny is a mistake. You’re far better off holding fire on employment until you can afford to pay yourself and others. Just remember that charity starts at home! One of the main downsides of not paying yourself is a practical one. The chances are that you’ll only be able to do this for a set amount of months before you start to suffer for it. And, if you’re struggling in other aspects of your life, it won’t be long until your business starts to feel the sting. Going without food, for instance, could impact your cognitive ability. Doing without at home could even lead to ruptures in your family life which impact your focus at work.
That’s not even the only downside of making this rookie move. There’s also an increased chance that you’ll lose passion for what you do if you don’t feel the profits. While it isn’t all about the money, earning certainly helps. During dark days, you can take heart in the fact that you’re making money doing what you love. If you aren’t earning, it’ll be harder to motivate yourself past the hurdles in your path. Thus, this could well be the undoing of your enterprise. That’s not to say you need to pay yourself a set amount each month. But, making sure you have at least a couple hundred to show for your efforts is essential.
Using life purchases as collateral
Given that we touched on rocky relationships in the last paragraph, it’s also worth noting that using life purchases as collateral against your business is always a mistake. The chances are that your wife will be less than impressed if you lose the family home for your half-brained scheme. Not to mention that this risks your family’s safety. Your kids would certainly lose their safe space. When it comes down to it, all these things should be more important than making a plan work. As such, you should ALWAYS resist the temptation to remortgage your house to achieve a higher business loan. This is a mistake which can cost you much more than just physical possessions. Instead, then, you should focus on building business collateral. There’s no denying that this will take much longer. But, it’s a step which ensures your personal life can continue undamaged. And, that’s an essential for anybody. That way, you know you’ve got a security net and a roof over your head, even if things go wrong.
Using joint savings for business purposes
Along the same vein, using joint savings accounts is another huge mistake. Putting money into an unknown entity is bad enough, but using someone else’s money is worse. Even if your partner would be happy for you to do this, it’s a step best avoided. The simple fact is that you have no idea whether that investment will come back around again. A failed business venture often feels akin to chucking money down the drain. Even if your partner says they’re okay with that, the reality may be different. What’s more, you’ll feel more responsibility in this case. You may even lie about your company’s financial situation, and strain your finances further as a result. Saving yourself the hassle comes back to keeping business and personal separate. Set up a business only savings account, and don’t embark on your idea until you have enough in there to justify it. That way, you can start your business on its own foundations, and won’t feel like you’ve lost if things go wrong.