The 4 Mistakes Entrepreneurs Make When They Begin to Make 'Real' Money
It is every entrepreneur’s dream: to make it -- to not only generate revenue, but have a humming business and a healthy profit to boot.
But just because you “make it,” doesn’t mean everything is smooth sailing. In fact, for some, this is where the real problems begin. As someone who has coached entrepreneurs for the last 20 years, helping them turn their companies into seven- and eight-figure ventures, I have seen many people fall into various success traps.
Let's take a look at four common mistakes founders make when they start to make money.
1. Choosing the wrong way to celebrate.
Finding success, however you define it, is a huge milestone -- and it deserves its own celebration. You need to feel the endorphins that comes when you achieve something major, otherwise, the day-to-day grind of running a business can be daunting, and honestly, not very enjoyable. The burnout feeling is one of the reasons so many businesses fail – with the first-year rate being reported as anywhere from 20 percent to 90 percent.
Yet, finding the people to commemorate your special occasion is easier said than done. One of the biggest mistakes that founders make right out of the gate is getting the wrong people to celebrate. These people are those who are jealous or critical; have no idea what you are doing or were unsupportive when you ventured out on your own. And unfortunately, these could be close friends and family members.
You need the right people to be there for you during this high – not the people who will bring you down for whatever reason. (Trust me: you have and will continue to go through many low moments. This shouldn’t be one of them.)
When finding people to ring in the occasion, make sure these people are trusted, have supported you in the past and are genuinely happy for you.
2. Forgetting to put money aside for taxes.
This is a big mistake that I see people make all the time – and one that comes back to haunt them in a huge way.
Entrepreneurs are busy working. They are focused on hiring employees, implementing systems, making sales calls and whatever else they need to generate revenue. But as this money begins rolling in, founders forget to set aside money for taxes. And that can be detrimental to a business. Indeed, running out of money is the no. 2 reason businesses fail, killing 29 percent of companies.
Make sure that you meet with your accountant and find out how much you need to be putting aside. (Rule of thumb: set aside anywhere from 30 to 40 percent of your earnings.) It’s a terrible feeling to get to the end of the year and be slapped with a monumental tax bill you weren’t expecting and don’t have the money to cover.
3. Not setting up a ‘wealth’ account.
When entrepreneurs get to the point where they feel like they made it, they may loosen the purse strings a bit – and use funds to pay down debt, take a vacation, buy that new car or invest in much-needed resources and tools.
While that is great, they also need to be thinking about the long-term future. It's very important to set aside a certain percentage of your gross income in a wealth account, or an account specifically focused on things that can appreciate, like investments and real estate. It's a great psychological tool because you see your wealth grow every time money comes in. I suggest that you set aside 10 percent.
Also, this exercise forces you to pay yourself, something some entrepreneurs can’t fathom.
If you don’t pay yourself first and set aside money in your wealth account, you’ll most likely be living paycheck to paycheck, and that’s not financial independence.
Related: Will Getting Rich Make You a Jerk?
4. They stop doing what caused them to make the money.
In the beginning of a business, there is a big push to make money. But when an entrepreneur gets to the point where the money is actually coming in, a little voice creeps into their head, asking, When do I get to stop?
Many founders find themselves in this mindset that when the pressure is finally off, they can stop working – or at least work less. As entrepreneurs begins to make money, they start to focus on other things in their life or business, and they stop what they were doing that actually made them money. Avoid this at all costs.
Think of your calendar as king. Calendar all your necessary activities and give priority to the income-generating ones. By doing so, your calendar in a tool that ensures you don't stop doing what caused you to grow in the first place.
Also, schedule weekly meetings to review your financials. They will allow you to see any downward trends and put strategies or course corrections in place before it's too late. To keep the excitement up, make sure to set business and personal goals so you always have something exciting to look forward to or work toward.
It's very important that you continue to develop the habits to do the things on a daily basis that caused that money to come into your business. The more it becomes a habit, the easier it is to continue to make money.