Are you an entrepreneur... and a millennial? According to a 2016 article published online by the Ewing Marion Kauffman Foundation, the peak age for starting a business “is closer to 40 than 20.”1 That's not really surprising considering the maturity and life experience you need to successfully run one. That means millennials still have a few years before they’re at the prime age for launching their own company. That’s not to say, however, that people in their 20s aren’t pursuing entrepreneurship as a goal. The article also pointed out that millennials are starting businesses at lower rates than previous generations when they were around the same age.1
While there's no definitive answer for why this is happening, some people contribute the slower pace to “student debt, timing of entry to workforce…and housing costs”1 and the list goes on and on. Young Invincibles, a millennial advocacy group, polled millennials and found that student debt and minimal retirement savings were seen as obstacles to forming their own company.2 The poll, conducted by North Star Opinion Research in 2015, also revealed that about 50 percent of millennials “either own a business…are planning to start [one], or would like to” (but don’t currently have any concrete plans).2 So if you’re a millennial planning to start your own business, here are four essential strategies a financial advisor should share with you as you work toward building your business empire.
Strategy #1: Don’t put all your eggs in one basket.
Yes it's a bit of a cliche, but it's true. When you’re just starting out, you don't want to rely entirely on your new company for income. In fact, you may not even turn a profit for a couple of years (if at all). That's why it's a good idea to have multiple income streams to help support you as you grow your business. From driving for Uber to renting your apartment as an Airbnb, there are a variety of ways you can make sure you always have cash coming in. Before you think about quitting your full-time job, make sure you have a plan for generating income while you while you work toward profitability in your new business. You never want to cut cords permanently without having an idea of how you’re going to financially support yourself while your business gains momentum.
Strategy #2: Seek professional advice whenever you can.
While you may not have enough assets to pass off to a wealth manager yet, professional financial advice is available for an hourly rate. Also, some financial advisors have no asset minimum, so it’s worth exploring your options before completely dismissing the opportunity. Just a couple of hours of dedicated, objective advice can save you years of headaches down the line. While you might not have ever considered hiring a financial advisor, there’s no harm in trying one out to see if they can add any value, especially when you’re starting your own company. Remember, there are numerous decisions you’re going to have to make and they're going to have a direct impact on your financial future. Don’t be another entrepreneur who failed simply because they lacked basic financial knowledge.
Strategy #3: Separate your accounts - business and personal.
To keep track of your business expenses (as opposed to your personal expenses), it's important to get a second checking account that’s purely used for your company. This will give you a clearer view of how much money is coming in and how much is going out. Once tax time comes around, it will be a lot easier to figure out which expenses you can write off, too. However, don't fall into the trap of signing up for a bunch of credit cards you won’t be able to pay off in time. Credit card debt sneaks up on you if you’re not careful, so stick to buying only the things you can afford. Running a business is costs a lot as it is, and profit is usually slow at first. That said, as long as you’re smart with your spending, you should be able to stay on track with your projections.
Strategy #4: Budget, budget, budget.
As an entrepreneur, it’s extremely important that you stick to a budget because you never know what expenses may come up. If you struggle with putting pen to paper, consider downloading a free budgeting app, such as EveryDollar, which can help organize things for you. However you decide to manage your budgets, make sure you have a clear understanding of how much money you spend every month so you don’t go off the rails and drown in debt before you have a chance to become profitable. While it will take some time to get used to it, over time, you’ll question how you ever managed life without a budget! If you struggle with putting everything on your credit card, consider switching to cash. Often, handing over cash — rather than a card — is going to make you more mindful of what you’re spending, helping you reduce impulse buying decisions.