When it comes to owning a small business, millennials are in a committed relationship. In 2016, Wells Fargo conducted a study that revealed millennial business owners take their entrepreneurial ventures very seriously. In fact, of those surveyed, 80 percent plan to grow their business for years to come, even hoping to pass their companies down to their children in the future.
However, if not managed properly, business finances can be a roadblock to future success. About 48 percent of millennials confess they are only “somewhat” knowledgeable about their business’s finances and rely on a wide net of resources — including family, friends and other business owners — for financial success.
So, how can we help today’s millennial business owners succeed and have a comfortable future? Seasoned entrepreneurs can offer up proven financial advice, including these six tried and true tips.
6 financial tips for millennial business owners
Pay attention to your credit.
Seek out a financial advisor.
Get out of student loan debt.
Use a financial management app.
Embrace a personal spending freeze.
Establish Plan B.
Let’s look at each tip in more detail.
1. Pay attention to your credit
Now more than ever, millennial small business owners are skipping loans in favor of getting into business with personal credit. Some 14 percent of those surveyed in the Wells Fargo study used a credit card to open their business. Why would they choose to do that?
Their age, business size and annual revenue (or lack thereof) may prevent them from qualifying for financial assistance. Hence, using a personal credit card may be one of their few options.
After a couple of years in business, these same millennials will be able to return to financial institutions a little older and wiser, with bigger companies and some earned revenue on the books. But, returning and seeking a loan with outstanding debt on a personal credit card isn’t a good idea.
New millennial business owners need to make sure they make their monthly payments so their credit is strong.
Potential borrowers who have some history of being able to pay off or pay down debt will have better luck with the banks than those who carry a high balance.
2. Seek out a financial advisor
According to the Wells Fargo study, 52 percent of millennials with small businesses have stated that they depend on the advice of financial professionals to make good financial decisions for their business. If you have enough within your budget to bring in outside resources for help, go for it. Do your due diligence to find financial planners or advisors who have worked with businesses similar to your own. They’ll know exactly what you’re going through and will be able to provide the best possible assistance in keeping your company financially sound.
3. Get out of student loan debt
Do you have student loans and worry the high debt amount will keep you from fulfilling your entrepreneurial dreams? You’re not alone.
Approximately 31 percent of millennial small business owners have some form of student debt they are trying to pay off.
About 7 out of 10 college graduates left school in 2015 with student loan debt averaging $30,100. NerdWallet columnist Brianna McGurran offers a number of suggestions for managing student loan debt to put you in a stronger financial position for starting a business, including:
- Work to lower student loan bills through better repayment plans or refinancing. Brianna notes that “the federal government’s income-driven repayment plans can provide relief by capping your federal loan payments at a percentage of your income.” Refinancing might be an option for private student loans.
- Make loan payments on time. This helps build a positive credit history.
- Evaluate the market before you go into business.
Then, plan ahead from there.
4. Use a financial management app
Need a little extra help managing your business’s finances but don’t have enough within your budget for professional assistance? Try out a free app, such as Mint or Level Money. Mint allows you be mindful of your finances and proactive in the budgeting process. It sends you an alert when you’re about to reach the end of your budget, provides advice on how to save money, and offers the ability to view your credit score. Level Money encourages smart spending and planning ahead, while simultaneously building up your savings — a must for entrepreneurs of all ages building a small business.
5. Embrace a personal spending freeze
In the early days of a new business, every penny counts.
Instead, freeze your personal spending habits to save money. Keep in mind that a freeze isn’t about going cold turkey on everything, but rather cutting costs in creative ways. In place of going out for coffee with a potential business partner, have him or her come visit you at your office for a drink from the Keurig. This keeps copious coffee outings from adding up — plus future partners can check out your office and see what you’re all about.
6. Establish Plan B
No matter how prepared you might be, not every startup makes it to the five-year mark. If the business fails, what happens next? Outline and establish a plan B so the worst-case scenario doesn’t completely blindside you.
If one business doesn’t work out, it doesn’t mean you can’t start a new one. Always start a business that interests you and isn’t created just for the money. Be creative, think outside the box, and be willing to work hard to continue to take the relationship you have with your business to the next level.
Image by: Visualhunt