After a career in American companies, IyaSokoya Karade has turned her love of gymnastics and her retirement plan into a new endeavor: opening a youth fitness center in her community. She soon learned that passion alone is not enough to build a sustainable business. One of her earliest mistakes, she said, was not paying herself a salary.
“Pay yourself because you’re going to run into a complete brick wall when you have debt and responsibility,” said Karade, owner and CEO of the Athletic Arts Academy in Orange, New Jersey. “You have to offer your service product and you look around and you have nothing.”
With a team of consultants to help her, Karade has changed both the focus of her business and the way she thinks.
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“You have to invest in a legal team, you have to invest in someone who will look at the money and tell you the truth,” she said. “Some mistakes end up costing you three times as much, and it can mean the end of your business.”
Not paying yourself a salary is a mistake many entrepreneurs make. According to a March 2022 survey by Wave Financial, more than a quarter (26%) of small business owners said it was their worst financial bad habit.
Separate business and personal expenses
Another major financial misstep: More than a third (35%) of entrepreneurs surveyed admitted to using their personal checking account for business expenses.
“Many new small business owners don’t spend enough time keeping their books up to date,” said Kirk Simpson, CEO of Wave Financial. His company markets accounting, payments, and payroll software for small businesses. Simpson advises having a “real baseline” to understand how the business is going.
Understand cash flow, build reserves
“Cash flow is obviously the lifeblood of any small business,” Simpson said. However, many businesses don’t focus on how to speed up their payments.
Lack of money is one of the main reasons for business failure. More than half (57%) of small business owners in the Wave survey said they had less than $5,000 set aside in case of a business emergency.
Simpson said that during this inflationary time, it’s especially important for companies to focus on their receivables and get paid faster, especially when they don’t have the ability to raise prices.
Be ready to spin
IyaSokoya Karade, known as “Coach Iya”, teaches students at the Athletic Arts Academy in Orange, New Jersey.
Planning ahead for unexpected changes in the economy, your industry, and your business is another important financial move for entrepreneurs, who often don’t have the financial cushion to make mistakes.
Still, nearly half of the small business owners surveyed said they won’t be able to find additional revenue streams in the event of a financial disaster.
“The key is to recognize what works and what doesn’t, and most importantly, to recognize that the existence of a business owner means a serious and continuous flow of fulcrums,” said Winnie Sun, co-founder and chief executive officer of Sun Headquartered in Irvine, California Group Wealth Partners and a member of the CNBC Financial Advisor Council.
When the pandemic hit and forced her gym to close, Karade decided to turn around and build a licensed child care center into the space. It was a move that required going through multiple tests and protocols, but it allowed her to reopen as a daycare was seen as an “essential business.”
“I thought about it, but I never had the money because I knew what it cost,” Karade said.
Turning to digital services and accepting digital payments are other ways small business owners have tried to ensure they stay afloat, experts say.
Some companies can use the Zoom culture to minimize office space.
“You can even find a corner of your home and recreate it to appear on camera as if you want your audience to think you’re there,” Sun said.
On the other hand, if you have a space that you are paying for, you might be able to rent it out for parties. Get creative and try new strategies without regret.
“Some things don’t work well, some dreams don’t work out, some things don’t resonate with consumers, and that’s okay,” she said.
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