Many new solopreneurs are understandably excited at the prospect of being their own boss. They dream of living it up in the Caribbean while spending the riches they earned from their hard work. Because of this fantasy, these people sometimes dive into entrepreneurship without much thought, causing them to make finance mistakes that they could have avoided had they been more careful. Of course, these mistakes are not in vain. It’s through them that people learn.
However, you don’t have to commit a finance mistake just to learn from it. It’s important to keep a level head and to listen to people who’ve been through the same thing before. You can learn from the experiences of others and avoid these three finance mistakes solopreneurs tend to make:
1) Taking out a big loan with a high interest rate
It’s not unusual for entrepreneurs to borrow money to serve as capital for business. Everyone from multinational companies to small business owners do this. However, not everyone gets out of debt successfully.
When you’re just starting out as a solopreneur with no other substantial source of income, go ahead and get a loan only if it’s necessary, and only if you can pay it off whether your business succeeds or not. It’s bad enough if your business fails; don’t make it worse by getting into deep debt.
If you can, borrow money from family and friends. They’ll most likely offer you loans with low interest rates, or none at all. And they’ll be more flexible in terms of payment schemes if your business does fail.
2) Using personal savings to fund a business
There are solopreneurs who refuse to take a loan. They prefer to fund their own business with their own money. On paper, this seems like a great idea, but not in execution. Many solopreneurs who used all their money as capital also lost everything when their business failed. Yes, they don’t owe money to anybody, but they’re also left broke.
If you’re going to use your personal money to finance your business, don’t forget to leave a substantial amount for yourself. You never know what will happen, so it’s best that you have some money you can count on in terms of major emergencies.
3) Not asking for enough money
Many solopreneurs are willing to enter the market with such low rates for their products and services in the hopes of attracting clients. It works well at the start, but as soon as they start increasing their prices, most of their newfound clients are also quick to leave. They have to start all over again, making them wish that they did it right the first time.
Instead of working your way up, why not target the market you want right from the start? It’s a waste of time to go for clients who will not be able to afford your intended prices in the long run, anyway. Also, by pricing your products and services too low, you’re incurring losses. You don’t have profit, and you’re also losing money. You didn’t become a solopreneur for that to happen!