No, I’m definitely not an expert but I do know a little bit about owning businesses and running them since that’s all I did when I had my day job as a business analyst.
As a quick summary, in my old day job some of my responsibilities included conducting interviews to learn more about a company and how they operated, analyzing any legal and business agreements, reviewing and/or compiling financial documents (including tax returns, financial reports, etc), and so on.
When I had this position, I saw some really amazing companies. I saw many companies where the owners completely started from scratch and built multi-million dollar companies which were extremely successful.
However, I also saw many, MANY companies that made some horrible mistakes. These companies operated at losses each and every year, and I just don’t know how they did it.
Even though I run a fairly simple business (all I need is a laptop and internet to work), I’m starting to understand more and more about what these business owners went through in order to get to where they currently are.
I’ve also made my own fair share of mistakes, and I know no one is perfect. Hopefully, you can avoid some mistakes though!
Below are four common mistakes made by the self-employed:
1. Not being organized.
This is a very common mistake made by the self-employed. I’m guilty of this one too.
I make this mistake all the time, but I am trying to improve. When you have your own business, you really need to work on being as organized as you possibly can.
You need to make sure to keep your personal and business finances separate, receipts organized, papers organized, and pretty much everything you use for when you do your taxes the following year need to be prepped and organized.
Keeping everything organized will help everything go much more smoothly when you eventually need the item. It’s easy to let each little thing slide and all of a sudden your disorganization will take over your life.
It might become impossible to find anything, and you might even lose important documents.
2. Thinking being self-employed will be easy.
Now, this one isn’t necessarily too common, but I do think it’s a common way that people who are NOT self-employed think.
I recently read an article about someone who quit their job and entered the self-employment world because they wanted to do something easier in life. Sadly, they found out the truth was the exact opposite.
Being self-employed isn’t a never-ending vacation. This is something too many people think. Just because you work for yourself and/or at home, it doesn’t mean that life is automatically easier.
You will need a plan for your business, research about how you will actually make an income, organize your finances, handle the legal side of owning a business, manage to not let your business takeover your life, provide services, sell products, find health insurance, save for retirement, and so on. Oh yeah, and don’t forget about taxes!
3. Not having an emergency fund.
I have seen too many people enter the self-employment life, only to have a few bad months and completely give up. I understand that running a business can be hard (see above), but I do think having an emergency fund can be a lifesaver in many situations.
Different people like to have a different amount in their emergency fund. I have a full year of expenses just in case everything completely tanks, or if something major happens to either of us or our home. Keep in mind that we do have a $12,000 deductible before we can actually use our health insurance, so we keep our emergency fund extra inflated with a year’s worth of expenses because of that as well.
An emergency fund can really help if you have a bad month, if something goes wrong with your business plan, or if you have some major expenses coming up.
Instead of completely giving up on your dream, your emergency fund can help you power through any bad months so that you don’t have to quit (unless you truly want to, of course).
4. Spending a crazy amount of money.
Luckily, my business is very cheap to run. I don’t need much in order to make an income. All I really need is my laptop and internet. Everything else I pay for are really just little luxuries to make everything a little bit easier.
When I first started my hustles, I ran it much more cheaply than I run it now. I wanted to save as much money as I possibly could.
This is not how everyone runs their business though. I have seen some business owners start their business by spending TOO much money on items that they probably do not need. Yes, some items are a need, but others can probably wait a little bit until you know you have a viable business plan.
Also, some spend a lot of money on their business just so they can write the expenses off on their tax return. Let me say this, just because you get to write it off it does not make the item free! You still have to pay for the item.
What mistakes have you seen or made?