5 Huge Financial Mistakes That Startups Make

When it comes to business finances, you need to be prepared.


By now you surely know that most startups fail. In many situations this happens because of financial mistakes. Losing control of a startup is a lot easier than people think. Some business owners stay focused on the idea that drives the business instead of also considering what moves have to be made to maintain financial stability.

However, the good news is that most of the financial mistakes that startups make can be fixed. But this means you need to first be aware that you make them. So, in order to help you make better financial decisions (pertaining to your small business), here’s a look at common financial mistakes that could take you by surprise:

 

  1. Not Understanding the Market

    Let’s say you want to sell clothes for seniors — adults 50 to 60 years old. Is it smart to invest money in an online store that caters directly to this demographic? You might think this is a good idea, but first consider their Internet consumption habits?

    While baby boomers are embracing digital media, it’s important to know how these trends impact your line of business. Conduct proper market research before you launch your startup. If you do not have a suitable understanding of your market, you will end up guessing instead of building a suitable strategy. Research will aid you to make a decision that is informed and will allow the smart business owner to take only calculated risks. Read financial blogs that can help you improve market analysis tactics and skills.

  2. Commitment Problems

    Being an entrepreneur and launching a startup is all about being the boss of you. This is highly appealing, but many novice entrepreneurs do not understand the fact that setting comfortable hours and lack of commitment generally lead to failure. Successful entrepreneurs dedicate most of their time to generating a profit. If you do not put in the hours needed, in the beginning, money will be lost and so will your business.

  3. Ignoring Gaps Between Profit and Sales

    When you launch a startup, you need to ask many different questions. A majority of them are related to profit and sales. For instance: Do you know how much time is necessary to process payments? Do you know how long it takes for payments to turn into bottom line profit? How will you reconcile and account for business expenses? These types of questions are important to consider. Meanwhile you should know (and understand) your cash flow — the amount of money your business has at any moment of the day. Being ignorant of business finances leads toward reckless spending and financial headaches.

  4. No Lifestyle Changes

    Quitting your full-time job is a huge defining moment. Starting your own business is an even bigger life defining moment. In most situations people that quit their jobs in order to open startups fail because they are not acclimated to the new lifestyle that is required.

    Running a startups requires a lot of personal sacrifice. You make less money in the beginning and you spend a lot of energy, time and money to ensure its success. Would-be entrepreneurs should understand the business realities of starting up and be prepared for a huge lifestyle shift or the business will crash and burn really fast.

  5. Lack Of a Good Team

    Even the best and most talented business owners can fail, especially those who insist to go at it all alone. There are only 24 hours in a day and a limit to how much time you can dedicate to your work. It is tough to start a business if you do not hire a support staff or outsource key business functions.

    Staffing is one of the largest expenses that a startup will have to tackle, but the associated growth capacity is worth the investment when your team operates efficiently and effectively. So, always try to make smart hires as soon as the budget allows for it.

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Getting Ready For Startup Success

Every entrepreneur can easily avoid the common startup mistakes I mentioned above. You just need suitable preparation, planning, research and quality decision making skills. So, ultimately as you look to avoid big missteps in business don’t forget to consider these four tips:

  • Never launch the business until you understand the capital requirements. Finances can easily be misinterpreted and when you run out of money with a startup during the initial stages it is tough to make a come back.
  • Create a good budget for your business that has financial cushions included. Always overestimate all business expenses in order to minimize the margin for error. Then overestimate how much time you will need to turn a sustainable profit.
  • Always have a strong backup plan. When it comes to business finances, a failure to have this plan B can easily lead towards an even bigger B — bankruptcy.
  • Lastly, be patient. Success does not happen overnight. You cannot force growth and there is always a possibility that you will need to wait until you reach your end goals.

When it comes to business finances, you need to be prepared. This is a lot easier said than done. Read all that you can about startups, launches and market analysis to gain the knowledge you need in order to be successful.

 

Boris Dzhingarov is a business writer who writes on behalf of Blog for Web, a guest blogging service. Connect with @BlogForWeb on Twitter.

 

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