There are many components to consider during the startup phase of a business. An entrepreneur must learn to balance many things for their business to survive. It is easy to forget one aspect or make a slip-up with another.
One essential aspect of any startup is the management of its finances. An appropriate amount of money flowing into a business keeps it operational. When a business owner is not careful with this component, it could cost him money, and his whole business. Here are the most common blunders during startup that an entrepreneur must avoid.
Downplaying the Involvement of a Finance Professional
It is natural for business owners to take some roles as they start their business. This is with the idea that they should save up on manpower costs. But, an entrepreneur should not undermine the role of a finance professional.
Getting the services of an expert financial planner can guide the business on the right path. It is much like helping an individual as they transition to different stages in their life. A business also has some phases and startup is one of them. As such, they can help you achieve clarity, direction, and growth. These financial experts can also help you avoid making emotional decisions.
Forgetting to Set up a “Rainy Day Fund”
It may feel depressing to think of emergencies during a startup. This stage is full of optimism and hope for all the best things for your business. But, as a wise and proactive entrepreneur, you must know that anything could happen.
An emergency fund helps your business to operate even in a difficult time. It could be an economic downturn, a slow market, or a product with low reception. A contingency fund can provide you with a financial cushion until you get yourself up back on your feet. It can also help you to form a new strategy to keep your business going. Experts say to save three to six months’ worth of your business expenses as your rainy day fund.
Focusing on Raising More Capital
Some entrepreneurs commit the mistake of neglecting the financial part of their business. Other business owners do the opposite. They get so wrapped up with the idea of getting more funds for their startup. They search and negotiate with potential investors or business partners.
In doing so, they forget the other important components. They neglect to take time in building their products and services. Also, they may disregard training their team or thinking of ways to win consumers. Investors may not be confident to fund something that is not very solid, to begin with. The key here is balance. Focusing on other aspects of your business may attract investors even if you do not look for them. When they see that what you can offer is promising, they would be willing to negotiate for the funds that you need.
Doing Big Purchases in the Guise of Investment
It is easy to get caught up with the buying or acquiring part at the start of any business. You want the best pieces of equipment or the latest technology. This is not wrong in itself. All these things could add to your success- or not.
You have to use a critical mind when it comes to big expenses. At this startup point, do you have a legitimate need for those items? Would the use of one that is more affordable make a big difference? Remember to tread carefully because it is easier to lose money than to gain it.
Learn the art of waiting. You could get top-of-the-line equipment or technology at the right time. Do not invest in them prematurely at the expense of all your capital.
Using Money That You Do Not Have Yet
You need to project success for you to gain it. But, some entrepreneurs over project future revenue. As such, they spend without control. Credit cards make this miscalculated act easier. The purchasing power of a plastic card makes you feel invincible. When you came to your senses, some great damage had occurred.
Thus, it is important to keep a level mind when it comes to revenue projection. Be hopeful about it yet be conservative with your expectations, too. Know the numbers by studying your competitors and seasonal trends. You would have a realistic grasp of how revenue moves in your line of business. Remember not to succumb to irresponsible credit card use and not to use money that you do not have yet.
A business operates on a good cash flow. A slip-up with the finances of your business can put you a few squares back in your progress. Having a sound financial mind will help you avoid these common mistakes.