SCFO #015: 3 Biggest Money Mistakes for Solopreneurs
Read time: 3 minutes
You became a Solopreneur for personal and financial freedom.
But unfortunately, you can’t achieve the latter if you repeatedly make mistakes with your hard-earned money.
Today, I’ll dive into the 3 most common money mistakes of Solopreneurs.
If you fix these mistakes, not only will you end up in a better place financially, but you’ll be far happier.
Let’s dive in.
Mistake #1: The More Mindset
The ‘more' mindset plagues most entrepreneurs.
It’s the idea that any problem can be solved with more of (fill in the blank).
More work
More clients
More expenses
The trouble with ‘more’ is that we never end up discovering what our enough is.
More becomes the natural response to everything, leading us further away from where we actually want to be.
I see this play out frequently with clients.
In one case, a client made an acquisition in an unrelated industry.
The acquisition strategy was solid, and thus far, it’s been a modest success, but it wasn’t without consequences.
For 6 months straight, the owner worked long hours, on weekends, and even during vacations.
It also diverted time and attention away from other business goals.
These are some of the unintended consequences you’ll experience with a ‘more’ mindset.
And, as Solopreneurs, we didn’t sign up for consequences like that.
That’s where defining enough is critical and coupling it with a closer over more strategy like Dan Nicholson suggests in his book Rigging the Game.
The idea is to evaluate each decision through the lens of whether it brings you closer to your goals. Closer instead of more.
But for this to work, you need to first define your goals.
Otherwise, you’ll constantly seek more without knowing what target you’re trying to hit.
Mistake #2: Over-Investing in Your Business
Okay, I know this is an unpopular opinion and I’m all for investing in your business, but equally important is investing outside of your business.
This is especially important for Solopreneurs.
Why?
More than likely, an exit from your one-person business won’t generate life-changing wealth.
Take my CPA business as an example. I can expect 1x of revenue if I were to sell my business…maybe, 1.5x if I get lucky.
At an 80% margin, a 1.5x sales price equates to less than 2 years of income for retirement.
This is why a system like Profit First is crucial at every stage of business growth.
It helps you get into a good habit of consistently taking a profit and investing it outside of your business so that you can achieve financial freedom.
Make your financial life anti-fragile by extracting profits consistently.
It gives you flexibility in case plans ever go sideways.
Mistake #3: Not Charging Enough
Hands down the biggest mistake I see is clients not charging enough.
So how do you know if you’re not charging enough?
You land every single job.
You’re constantly swamped.
You have low-quality, high-demand clients.
When you have one of these signals or even all, it’s your business’s way of screaming at you to increase your price.
Take a sanity check quarterly on prices to see how you stack up against competitors.
At a bare minimum, target market rates, and preferably, shoot a little higher.
This is one area that immediately bolsters your bottom line.
Take my buddy as an example.
He runs an aquarium maintenance business and we spent an hour running through his client roster.
Pricing was all over the map, but we were able to identify a significant chunk of clients priced 30% below market rates.
To put that into context, that’s a $30,000 mistake on $100,000 of revenue.
To top it off, his worst client paid the least.
Since our conversation, he started to increase prices and got his worst client back to market rates without complaint.
Lastly, I can promise you that you care way more about prices than your client does.
Most of your clients won’t bat an eye and the ones that do, you likely don’t want anyways.
Takeaways
To recap, the top 3 money mistakes of Solopreneurs include:
The “more” mindset
Not charging enough and
Over-investing in your business
There are several others I’d like to point out that weren’t discussed today. This includes:
No emergency fund,
Not tracking expenses, and
Not keeping a pulse on your finances
You can address these with a 3-6 month target for your emergency fund, and scheduling time to consistently review your finances (or partnering with someone that can hold you accountable).
Thank you for tuning in!
See you next week.
P.S. please let me know what you think of today’s edition and drop in a suggestion for future editions.
P.P.S. if you’re a Solopreneur and want to maximize financial clarity while minimizing taxes, book a free 15-minute call today.
I help Solopreneurs get unstuck in their finances, so they can focus on doing more of what they love.
