The idea of building something meaningful rather than slaving away in a 9-to-5 has driven many young people into entrepreneurship. Unfortunately, not every young person gets to their happily ever after in business. Nearly 50% of new ventures, including enterprises started by up-and-comers, fail within their first 5 years. Many factors contribute to this harsh reality, with critical investing mistakes at the very top of the list.
Most ventures started by young people crumble prematurely, not exclusively due to insufficient demand and poor sales, but because their founders make a couple of detrimental blunders, including the ones discussed below. Use the tips outlined here and in other beginner-friendly investing guides to avoid them and build a thriving enterprise.
Mistake #1: Mixing Business and Personal Investments
One of the costliest investing mistakes you can make as a young entrepreneur is failing to draw a clear line between business and personal investments. For instance, you might start a venture with personal savings, fail to set up a business account, and then later use the revenue you get to pay for personal expenses. Or, when running a company, you decide to use your personal credit cards to buy inventory.
Mixing business and personal investments and finances makes it harder to calculate how much revenue your venture is getting. You might mistakenly assume your company is doing well when it’s making losses and you’re propping it up with your own money. Moreover, if anything happens and your venture gets sued, courts may resort to “piercing the corporate veil” and seize your assets if you frequently treat the business like a personal bank account.
Avoid this issue and its consequences by:
- Setting up separate checking and credit accounts for your business from the get-go
- Paying yourself a salary instead of dipping into business funds whenever you please
- Deciding how much of your own money you’re willing to invest in the venture
- Consider every cent you put into your business from your personal kitty as either a loan or an equity investment
Mistake #2: Chasing High Returns Without Understanding the Risks
Most young entrepreneurs are driven and ambitious. Unfortunately, the same traits often push many into chasing high returns without first assessing and understanding the involved risks. For instance, as a young business-oriented individual, the dream of making a killing like some of the most popular crypto millionaires might drive you into investing your own company’s funds in newer speculative assets without conducting proper research.
Before risking any capital, especially from your business, do your homework. That is crucial, especially in this speculative bubble era where undeserved hype and rug pulls happen every other day. And before investing, remember that higher potential returns often go hand in hand with escalated risk. You might invest in a high-risk asset and double your money or lose everything overnight.
Only risk your hard-earned money when you know all the essentials, including what the involved asset actually is, its volatility, and market history. Don’t let the fear of missing out (FOMO) overrule your sensibility or lure you into making hasty decisions. And remember that business capital isn’t play money. If you invest a considerable chunk of your enterprise’s funds in a risky venture, everything might grind to a halt if things go sideways.
Mistake #3: Ignoring Long-Term Planning
As a young entrepreneur, you are highly likely to be consumed by the “now,” more so as pressure to survive and prove yourself mounts. We live in an era of instant gratification where everyone is chasing quick growth hacks and wins, an issue that is spilling over from ordinary folk and affecting entrepreneurs.
Don’t sideline long-term planning if you want your business to thrive for years. Make it a part of everything, from talent and customer acquisition to expansion and closing deals. You shouldn’t focus on short-term wins alone because you might miss bigger opportunities that will pay off later if you’re patient and devoted.
Hyper-focusing on short-term goals also increases your odds of living perpetually in start-up mode. That means you will constantly be scrambling about, hustling, and putting in long hours. Eventually, you will succumb to chronic burnout and mental fatigue, which might herald your downfall.
While we are still discussing long-term planning, you shouldn’t rely on a grand exit. The idea of toiling for a couple of years and hitting a quick jackpot by selling your company for a tidy sum might be attractive, but it shouldn’t be your sole target. Remember that not every startup gets acquired for millions, and exits can be highly unpredictable.
Mistake #4: Not Seeking Professional Advice
As a budding entrepreneur with limited resources, you can try to cut costs by doing everything without professional guidance. That may work initially, but it will eventually lead to costly investing mistakes, unnecessary complications, and missed opportunities. Here’s an example.
Suppose you launch a startup and decide to manage all tax-related matters without consulting a professional. Your lack of experience might lead to a number of issues, including incorrectly filed forms, missed deductions, and compliance problems.
No matter how sharp your knowledge and skills may seem, you shouldn’t try to go solo. Seek advice and guidance from professionals, especially where legal, hiring, and financial matters are involved. First, identify your needs as early as possible. Just analyze your current standing and pinpoint where you lack sufficient expertise. If you have enough resources, build an in-house team of advisors.
Mistake #5: Timing the Market
Timing the market is essential. To succeed at entrepreneurship, you must launch products or services when demand is high. A fancy VHS tape rental store will fail today, no matter how fancy it is, because consumers aren’t interested in VHS tapes; so, investing in racks of these items is a terrible idea.
That said, you shouldn’t obsess over perfect timing. Entrepreneurship is all about taking risks, and the markets are often highly unpredictable. If you have an idea that seems reasonable, act on it. You can always learn and adapt after launching your venture. Otherwise, if you wait for the perfect moment to act, you might end up waiting forever.
While assessing the best time to start your venture, you should also focus more on long-term trends. For instance, if you’d like to sell reusable water bottles, pay more attention to the number of people shifting to such alternatives, rather than how hot the next summer will be. Most importantly, maintain emotional control and avoid being overly influenced by short-term hype or fear.
Conclusion
Entrepreneurship is risky; don’t increase your odds of meeting an untimely fate by making the investing mistakes discussed here. Use every hack you can find to avoid them, including our discussed strategies. And if you’ve already made some of the mistakes mentioned here, don’t lose hope. Every entrepreneur takes a few missteps – it’s like a rite of passage. What you need to do now is be honest with yourself, own your mistakes, and take action. If need be, hire a professional to help resolve everything.
Photo by Sortter; Unsplash
