Money mistakes that entrepreneurs make

Business owners are different than the average investor, and therefore need to invest differently. As risk-takers, they have the unique ability to balance their passion with self-discipline. But while they’re excellent at watching the income and expenses of their business, they often fall short when it comes to investing. Entrepreneurs can easily make mistakes, from overspending, to taking too much or insignificant risk.

Advice on investing, however, relies heavily on diversity and stocks, and is often geared towards a more traditional investor. For business owners looking to scale their investments, knowing how to invest can be difficult. Fortunately, there are several investment strategies that can strengthen your portfolio whether you’re a startup visionary or an established business owner.

Building your portfolio

Money mistakes that entrepreneurs make can happen in all industries. But with smart financial planning, you can avoid those pitfalls.

To begin with, if you have substantial assets invested in your company, you should look at conservative options. An aggressive portfolio might rely on stocks and have very few investments in bonds. That may work for someone with a reliable salary, but not when future earnings and expenses are in flux. An entrepreneur’s portfolio should have a more comfortable 50/50 split between the two. Startup owners specifically should lower risk by investing in more bonds.

It’s also important to save money as you build your business. Entrepreneurs often have a challenging time finding a balance between spending and saving money. With business expenses such as payroll, operating expenses, employees, and marketing, it can be tempting to incur more debt. Sinking all of your savings into your business isn’t a good strategy either. You may lose everything if it suddenly becomes hard to raise more financing.

Business owners can also levy tax strategies to their advantage. Using a Roth IRA conversion strategy, entrepreneurs can offset business losses with the income from a traditional IRA. Money in an IRA is not taxed until you take it out. When you convert a traditional IRA to a Roth IRA, you move your money into another tax deferred account, but the government taxes your money before it rolls over. Therefore, the money in a traditional IRA is considered income when converting to a Roth, and that income can offset business losses.

Advise you can count on

Take your business further with the financial consulting services of GYL. Unlike other firms, we get to the “core” of your business and map solutions to increase profitability. Our consulting services can advise you on how much you can invest, craft strategies for growing your business, and help you navigate change. Like entrepreneurs and small business owners, we believe financial services should work “on” your business, not just “in” it.