Financial Mistakes I have Made in The Last 7 Years (Part 1)

Wise people learn from their mistakes. Very wise people learn from mistakes made by others. This and the next couple of posts are will hopefully make you very wise, by learning from financial mistakes I have made (and continue to make). I hope you will avoid them as you plan for and use your money.  Why 7 years? That is how long I have been employed. Seems very long, but a quick glance at my bank statement proves otherwise :-). So here goes.

In 2008, after about two years in employment, I went on an adventure:

I started my first “real” business, a farming venture. 

See I was raised by a very entrepreneurial mother. Growing up, not only did we participate in her businesses which ranged from a retail shop to a clothes business, we also got numerous opportunities to try out our own ventures. I started my first mini business when I was 5 years old. I would collect old glass bottles, clean them, disinfect them then my father would accompany me to the village dispensary to sell them. This idea came to mind when we went to the dispensary and couldn’t get cough medicine because they had run out of glass bottles; plastic bottles weren’t as ubiquitous.  Many other mini-businesses followed that.

With my background, I knew I wouldn’t be in employment for very long (I had a 10 year goal), and I needed to explore self employment avenues. Farming was the obvious choice having grown up in a farm and I had done a bit of small scale farming after high school with good results. Though I had not farmed commercially before, I decided to go all out and this is where I made my first PF (personal finance) mistake:

I took out a loan to invest in a business I knew little about.

I am not able to give too much detail on here, but the loan was about 6 times my monthly salary, and I was to repay it in 4 years. I quickly leased 10 acres of land, organized to have all the equipment, hired the staff I needed for the farm, and we were in business. However, a couple of months down the line, we ran into several problems:

1. As any farmer will tell you, farming is a science as it is an art. You learn to do the right things over time, and mistakes abound. By starting out with 10 acres, we were greatly exposed to the cost of our mistakes. And boy did it cost us loads!
2. By taking out a loan, I’d dedicated a significant chunk of my salary to loan repayments, with the assumption that in 6 months, the farm would be self sufficient. It didn’t work out, and by the 4th month, the farm needed monthly capital input, which I didn’t have.
3. Farming part time meant entrusting my biggest asset at the time, to barely educated staff members. In any business, people are not only the most important component, but also the most troublesome. It didn’t work. I would leave instructions at the beginning of the week, only to find they were not executed well or weren’t executed at all 7 days later. When dealing with plants, 7 days is a long time.

After about a year, I quit farming. I tried it again two years later, but had to stop for reasons beyond my control, and I intend to resume my farming business this year. See below the reason why.

Lessons you can learn from this…

1. When starting a new business, it sometimes helps to experiment: There are a few people who have invested big the first time and it paid off, but most people succeed after several tries. My advice is whenever you’re trying something new, start small, and learn. It is less costly that way. Unless you have deep pockets of course.
2. Borrowing for a new business isn’t wise: Unless you are confident that the business will have zero learning costs, do not borrow to finance it at the beginning. It is wiser to use your savings, or contributions from family and friends. Borrowing puts pressure on you and the business, and often leaves you with nothing to invest further, should it need additional funding.
3. There is immense value in managerial oversight at the beginning: Ideally, you should oversee the operations of your business from the start, because at this stage, the business is very sensitive to any missteps. Once it’s running and the systems are in place, you can hire someone to take care of it. If you’re not available to do this, my advice would be to get a partner, or someone who is as invested as you are in the success of the business to help you run it. In some cases, family members have been great at this.
4. Don’t give up too soon: This is the reason why I intend to go back to farming. I paid a hefty fee for my lessons, and I believe it would be a waste of money if I didn’t put those lessons into good use.  Unless the business idea is invalidated, failing the first time isn’t reason to give up. Consider that school, go back and do it better!

Want to know what other 4 PF mistakes I have made so far? Keep reading…