Most tips and strategies surrounding the creation and launch of a startup business involve finances and budget decisions at some point. If you want to succeed, get a head start by avoiding these common financial mistakes that far too many entrepreneurs make. Lack of planning, data collection and analysis, and smart decision-making all lead to struggles that can destroy your brand before you get a chance to thrive.
Failure to Understand Overall Business Value
Enthusiastic entrepreneurs frequently overestimate how much their business idea is worth. The only way to manage money properly is to have a clear and data-driven value from the start. It helps to get an outside appraisal especially if you want to attract third-party investors or apply for loans.
Understand the Basics of Business Finances
Business founders often wear many hats in the beginning, but you still probably have a separate bookkeeper and accountant to help. Despite relying on experts in those fields, knowing how to read financial statements, understanding record-keeping, and developing a sense of financial forecasting will serve you well both at launch and far into the future.
Borrowing or Using Credit You Do Not Need
Debt is both risky and necessary for most entrepreneurs. However, just because you can get a business loan or a new line of credit does not mean you should. The best way to fund the growth of a new venture is through profits. Before you prove the profitability of your business, rely on the lowest risk sources of capital possible. Otherwise, interest rates and aggressive pay back schedules can stymie your plans for expansion.
Counting on One Product, Service, or Strategy
Simple businesses with a highly specific focus launch and thrive every day. However, putting all your entrepreneurial eggs in one basket carries a lot more risk than diversifying. Of course, you do not want to stretch too far in the beginning. Just like you would not invest in a single fund for a long-term investment strategy, you should not rely on a single source of revenue for business success.
Taking On Too Much Overhead Cost
Do you need a storefront on the busiest street in town or should you focus on less expensive online strategies first? Does it make financial sense to hire three experts full-time when you could outsource on a contractual basis? Everything from office space to employees to equipment to the snacks you provide in the break room all adds up quickly. You need some of these things to function, but there are always ways to reduce overhead costs. Only upgrade and pursue new growth strategies when your business profits allow for them. I always say, “hire slow and fire fast.”
Using Strategies Big Brands Do
This common entrepreneurial mistake covers a lot of ground. Most specifically, things you should avoid include allowing accounts receivable, pricing products or services at the top end of industry standards, gambling on future profit projections, and overestimating the power of your brand instead of your sales-focused marketing. All of these things work best after you develop a track record of success and collect sufficient data to determine the best path forward.
Minimizing risk, expenses, and expectations are all a part of the entrepreneurial journey. When you avoid these common mistakes, you have a much better chance of becoming a success.