Seven Money Mistakes Young Entrepreneurs Make

Source: Entrepreneur.com


Keeping track of your personal finances and launching a business is doubly challenging. Here are a few mistakes young business owners make with their money.

When Hagan Major, 26, started his online-ad buying business more than a decade ago, he didn't know the first thing about finances.

"We were funneling all of our money into the business and not taking anything out. . . the company was buying us lunch," says Major, co-founder of YellowHammer Media Group in New York. Further, blurring the line between his personal and business finances wasn't just an organizational headache. "It made taxes really complicated," he says. After accidentally using his Social Security number instead of his company's tax ID number to purchase online ads in 2007, Major received a big bill from the Internal Revenue Service: He owed Uncle Sam back-taxes on $60,000 of the company's revenues. "I ended up having to eat the taxes," he says.
Major is hardly the only young business owner to make personal-finance mistakes. "Many successful entrepreneurs become so consumed by the business of the day that some of their personal finance priorities get dropped," says Eric Johnson, a senior client strategist at Signature, a wealth-management firm based in Norfolk, Va.

Here are seven common personal-finance mistakes that young entrepreneurs make – and how to avoid them.


1. Overinvesting in the business
To look more professional, young entrepreneurs may spend their savings too freely. Maybe they lease ritzy offices or purchase high-dollar equipment. Overspending on business expenses that aren't absolutely necessary can quickly erode your personal finances, says Alexa von Tobel, founder and CEO of LearnVest.com, an online personal-finance resource for women. It can be easy to burn through your savings before you even have a product or service to sell, she says. That's when young entrepreneurs dig themselves deeper in the hole personally.
Instead, "spend every dollar you have on building a really good product and get it in front of users," von Tobel says. "If your product isn't good, there's no hope for making any progress."

2. Cutting corners on formalities Tips for Business Owners on Retirement Planning
All too often, young entrepreneurs will cut corners on legal and accounting advice, notes Johnson. Maybe they know an attorney or a finance guy so they ask if they might help them get licensed or take a look at their books. But those moves can backfire. "Hire someone who is an expert in the specific field that you need," he says.
One accounting mistake, for instance, can lead to paying far more in personal income taxes than you should. And when personal finances are in disarray, it can scare off potential investors and force you to sink even more of your own money into the business.

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