The 5 Top Financial Mistakes of Millennial Entrepreneurs
Millennials are known for their entrepreneurial spirit, and many new businesses are springing up across the country as a result of the adventurous and enterprising mindset of the Millennial generation. However, starting your own business can have a number of pitfalls, especially for those who are not properly prepared. Only a tiny fraction of the businesses launched every year even make it 5 years. While there are some well-known examples of Millennial startups that made it big (Snapchat, Airbnb, Facebook, etc.), these are the exceptions rather than the rule.
The main reason most new businesses fail is lack of financial planning. Any successful business will require capital of some sort to cover startup costs like marketing, sales materials, etc.. Whether due to a lack of sufficient startup capital, or mismanagement of available funds, financial woes are often at the heart of a new business’s demise.
A good financial education is key if you want to succeed in your new business venture! With that in mind, here are 5 of the most common financial mistakes made by Millennial entrepreneurs, according to Inc.com – plus some tips to help you avoid making them:
1. Not Having a Business Plan
While Millennials tend to be filled with passion and enthusiasm, these two important elements can’t make up for the lack of a good business plan. A business plan outlines the goals for the business, and the details on how to achieve these goals – as well as how much money you need, when you will need it, where the funds will come from, sales projections, expenses, and more. Without this, your business is like a ship without a rudder. Having a good business plan is the start of any successful business, and the lack of such a plan will lead to numerous financial woes down the road. If you’re not sure how to design a business plan, work with an expert who has experience in this area.
2. Not Having a Sufficient Cash Flow Cushion
Starting a new business is always risky – in part because it is hard to know exactly how much money will be coming in, and when. According to a U.S. Bank study, 82% of businesses that fail do so due to cash flow problems. In order to mitigate this particular risk, it is important to have a financial cushion in place to protect against emergency or inaccurate cash flow projections. Before you launch your business, you should make sure to have enough cash in reserves to cover your business’s financial needs for the next 12 to 36 months in case of a cash flow shortfall.
3. Not Raising Enough Capital
As mentioned above, having cash flow reserves is essential in case things don’t pan out quite as expected at the start. Whether you are raising capital from investors or other sources to start your own business, or using personal savings, you will want to make sure you have plenty of capital for your business’s expenses early on. 29% of new businesses fail because they run out of cash, and according to this article, 77% of small businesses reply on personal savings for startup capital.
4. Living Beyond Your Means
It can be tempting to spend lots of money when your business first becomes successful – after all, you’ve earned it, right? But it is much more prudent to be cautious and live frugally during the early years of your business. Once your business is established and has strong, consistent cash flow, you can of course take a decent income for yourself.
Many Millennials are also saddled with much higher amounts of student loan debt than previous generations, which means they have less money to invest in their businesses, and when cash flow does come in, quite a bit of it goes towards servicing debt. Don’t be tempted to try to support a lavish lifestyle when you’re carrying debt and running a business. First, focus on getting your business going strong and building cash flow reserves, then pay off your debts, and then you can relax and enjoy the financial rewards of your business without having debt hanging over your head.
5. Not Working with A Financial Expert
One recent study found that lack of financial literacy when it comes to managing the business finances – including pricing, taxes, and planning – causes 46% of business failures. This is why it is so important to work with an expert who can not only help you manage your cash flow properly, but also educate you on how to manage the financial aspects of your business.
While these mistakes are cause for failure for many new businesses, Millennial entrepreneurs do have some great characteristics to bring to the business world. Passion, drive, and innovation are also essential elements for starting a business, so don’t let the mistakes above scare you out of pursuing your passion if you have a great business idea! If you keep these mistakes in mind, and follow the suggestions above to avoid making them, you will put yourself in a better position for a successful business.
If you are thinking of starting a business, we have financial expertise in this area! Contact us to set up a time to speak with one of our business planning specialists, and you will greatly improve your business’s odds of success.