I just was a newbie teenager with an entrepreneur’s mindset — A young college student, trying to get a few pennies to complete the college’s tuition. So I didn’t realize I was falling down. I didn’t see the three financial signs we’ll talk about and I didn’t give up at the right time when I was running three small businesses — a small fast-food restaurant, a consultancy and training, and a retail business; one after another.
After a few years, the outcome was the same. A big failure and a huge debt.
There’s no doubt that all of that is the result of a common thing among all of us as beginners entrepreneurs. We have the wrong idea that if we keep a relentless passion and a fixed mindset about our business idea we are going to survive and keep our business alive. Therefore, most of the time it makes it impossible to give up even under the worst scenarios.
Our passion and belief for it are so strong that we are blinded by optimistic and make our current financial situation blurry, so much so that we force the process to keep rolling it at all costs.
I am not saying that you shouldn’t be persistent and passionate about your business, you must, at all. However, whenever you are falling into the next three bad financial scenarios we’ll talk about you will finally understand why they are clear signs that it is time to run away and step away. So it’s time to make a full stop.
An abrupt stop and give up on your business idea is the only option. Let’s dig into the scenarios that support that decision, just right now.
1. Injecting your own money
Putting personal money might be a smart decision whenever you are starting out your business. You can leverage from a special “seed fund” — your personal money when there’s no investors nor external funding.
In that sense, most of the time the only option we have is to withdraw and put our personal money either part of it or all of our savings to start rolling our company.
However, once your business is running it is a bad idea to start injecting personal money in order to keep your business idea alive. It’s the worst financial decision you can make. Let me explain a hands-on experience.
I’ve been trying to build businesses since I was young. I failed in all of them. But I would like to talk about the three bad experiences in where I believed that injecting my own money — by the way, a low job salary, I would be able to boost the business and keep it alive.
In the end, the story was completely different. I died trying it doing it several times and the worse I was creating the debt-snowball effect without being aware of.
Nowadays I am still suffering part of those side effects, sadly.
2. Falling into the endless refinancing and consolidating loan cycle
First thing first. Refinancing a loan means taking out a new one to replace your existing one. This idea may come from different needs and circumstances. You are trying to make a good deal to get more favorable terms — low-interest rate, take a breath on your monthly payment. That’s your final intentions, the outcome is the same, though, more debt.
Due to my lack of financial education, I ended up making the same mistakes in three consecutive business ideas. After some time I started to seek ways of refinancing the loan. I believed it was a smart decision.
The story continues. A few more months and years later I had got a new loan from a different financial company. So after a few months, the idea wasn’t to refinance it but to consolidate the loan.
This endless cycle hit me strongly. Therefore it’ll do sooner than later on your side if you are doing the same, hopefully not. Thanks to that, I fell into huge debts, I stumbled upon huge problems, with my business closed and disappointments around my short business’s life. By making that kind of decision I just wanted to keep my business alive and rolling it at all costs. I didn’t give up on time, though.
3. Creating the debt-snowball effect
Refinancing and consolidating loans as well as injecting my personal money created the debt-snowball effect without being completely aware of. Or at least I didn’t want to accept it at that time.
You won’t let me lie, we perfectly know it but there is a little hope that in your next refinancing or consolidation deal will be much better and you will finally find a way on how to get out of that hell.
However, what I realized, it’s exactly the opposite. The more you consolidate or refinance, the more debt you are getting into. They start to increase quietly and exponentially.
I bet to say that even when you have a strong financial education you will fall into it because the root cause is not that way.
Ending Takeaway
Certainly, experiences are the best school. We learn a lot from making those enormous mistakes. In my humble opinion, sometimes it is a good idea to avoid them as we are falling into the cases explained throughout the post.
In addition to that, we need to be open mind and conscious that at some point we should give up on time. In that regard, if you are going to give up anyway, why do you need to wait until something you expect to happen doesn’t happen?
We shouldn’t realize and give up until we have got into huge and unsustainable debts. It’s really painful.
Finally, we should be able to figure out the real business’s illness. Most of the time is an optimistic and unrealistic plan or in the worse case, a zero plan. Our passion and optimism blind us and we don’t see those things coming in.
Thanks for reading. It would be a nice idea to add your thoughts on this.
