Do you want to know "The Top 10 Books Recommended By Over 500 Entrepreneurs?"

Top Financial Mistakes Entrepreneurs Make When Creating a New Business

Financial Mistakes Entrepreneurs Make

Top Financial Mistakes Entrepreneurs Make When Creating a New Business

Managing to keep the cash flowing is one of the biggest concerns for every new entrepreneur. And what makes it even more difficult is their unawareness of the pitfalls along their path. Creating a new business is a big task, and keeping the cash flowing is part of the responsibility.

Forbes states that “There are almost 28 million small businesses in the US and over 22 million are self employed with no additional payroll or employees (these are called non-employers)”. The question is – how many of them will survive in the long run?

Even if you have a winning idea, a superb product or an excellent service, you need to pay attention to your finances to transform it into a successful endeavor. And while you have to focus on the dos, you also need to be careful about the don’ts.

In order to make your transformation flawless, let’s take a look at the top financial mistakes entrepreneurs make at the start.

Mistake 1: Biting off more than you can chew. You need to dream big when you start out as an entrepreneur. But if your dreams don’t fit your budget, you are in for some big trouble. Keep your head in the clouds and your feet on the ground.

Suppose you sell handmade gifts online. Do you really need to have a physical store? No. Yes, it can add to your business. But if you are hard pressed for money (that you invariably are at the start), isn’t it a better idea to make it a home-based business initially?

Mistake 2: Underestimate expenses. Just like a business plan, you need to have a financial plan at the beginning. But it’s a little different. While you need to stick to your business plan, you need to tweak your financial plan a little.

What do you need to do? Just double whatever you have set as expenses! Many businesses fail because they underestimate just how much they will need to keep things running. Doubling the figures gives you a cushion to fall back on even at the last minute.

Mistake 3: Falling prey to the allure of new. A new office furnished with modern pieces and showcasing the latest gadgets may look and feel nice. But unless you need to meet clients at your office regularly, it’s just a waste.

As a new entrepreneur, you need to focus on how you can save money. Instead, of new furniture, opt for used ones. They will be good, and come cheap too. If possible, let go the idea of an office entirely or maybe get an office suite instead of the entire deal.

Mistake 4: Employing individuals. Everyone feels high and mighty when they are in a position to employ others. But consider your decision a hundred times before you do it. It is one of most expensive choices you may make, and it can quickly become a cause of concern.

Instead of full-time employees, opt for contractual professionals for your business. They may have a higher hourly rate, but you won’t be burdened with them once the contract runs out. And as they are experts, you save time and money on training and supervision too.

Mistake 5: Not having an exit plan. A new entrepreneur needs to aim for success and prepare for failure. While you need to put in every ounce of your time, money and effort into your endeavor, make sure you have a safety net in case anything goes wrong.

It’s best to keep aside an emergency fund that will come in useful if your business doesn’t break even in the time frame you have set. It’s imperative that you don’t break into this fund to try to save your failing business. This will see you through until your next venture.

Be wary of these top financial mistakes entrepreneurs make and you will be able to better manage your finances, right from the start.

If you are looking for great books that provide insights into the financial management of a new business, I recommend the following 5 reads:

Business in Blue Jeans by Susan Baroncini-Moe – Listen to my interview with Susan here
The Financially Savvy Entrepreneur by Emily Chase Smith – Listen to my interview with Emily here
The Millionaire Master Plan by Roger James Hamilton – Listen to my interview with Roger here
Think and Grow Rich by Napoleon Hill – Listen to my interview with Don Green here
How To Get Unstuck by Barry Moltz – Listen to my interview with Barry here

What is the biggest financial mistake you have learned to overcome with your business or in life? Share your answer in the comments below so others can chat and learn as well.

Share thisShare on FacebookTweet about this on TwitterShare on LinkedInPin on PinterestShare on Google+Share on StumbleUponShare on RedditPrint this page

Cody Faldyn

Cody is a blogger, social media specialist, graphic designer, and the Marketing Evangelist behind The Entrepreneurs Library. With a long time passion for personal growth, Cody helped create a website and podcast with the intent to educate aspiring entrepreneurs on the latest and greatest books on business growth and personal development.

  • http://OneBoldMove.com/ Frank Gustafson

    Great observations Wade. As an entrepreneur, my biggest financial mistake was not aggressively creating revenue in every waking hour. Revenue will cover a lot of rookie blunders and many veteran mistakes too. Make the cash register ring! It will help you sleep better at night!

  • http://www.redpointmarketingconsultants.com Kevin Jordan

    Great tips! I made a few of those (ok, most of those) myself…and I’m still working on that exit plan.

  • John Ramstead

    I just recommended to a client of mine not to hire but to contract out key tasks as they grow. New leaders hire to quickly and are very reluctant to fire people which damages the culture and slows growth. Great book suggestions on this Wade!

  • ahmoran

    Great post Wade. I don’t know what Kevin Jordan is talking about :^)….I would love to meet the people that didn’t make any of them!

  • FireStarters

    Thanks Wade, great article. Would appreciate your valuable insight on an effective, low-cost approach for new online business owners.

  • Karen Osburn

    Oh gosh, probably made all of those mistakes. Especially the needing the ‘new’ and biting off more than I can chew. Great posts!

  • http://www.luma-coaching.com/ Jodi Flynn

    I’ve made the mistake of investing in “new” before determining that I really needed it. I fell prey to a false sense of urgency many times.

  • fitJaime

    The cash flow of my business is unpredictable, at best. That’s what I’m working on fixing between now and the end of the year. The biggest thing that I missed when I started my business was learning how to create regular income. I would talk projects that have start and end dates without knowing when the next project would start. If I were to do it again, I would get more aggressive with getting clients onto maintenance schedules.

  • passionatelypam

    I think #1 and #2 resonate with me the most. Also, I have learned as an entrepeneur that most things take much LONGER than you had planned for. Great tips, Wade!

  • http://www.successharbor.com/ George Meszaros @successharbor

    Good stuff. I am writing an article on a similar topic and I found this helpful.

  • http://www.fifocapitalcoralsea.com.au/ fifocoralsea

    Many entrepreneurs start their business using a personal credit card. However, as you well know, business expenses are often much higher than personal ones, so if you are unable to pay off your balance, it will start hurting your personal credit score. When your credit score drops, it’s going to affect all your financial transactions, both business and personal.

  • http://www.indiobailbonds.com/ Indiobailbonds

    It is widely known that new entrepreneurs should find a mentor. Every CEO has someone they can talk to about the ups and downs of running a new company, someone who helps them make the tough decisions. This same adage goes for keeping your money organized.

  • http://cabreralawoffices.com/ petercabrera

    You need to understand how each dollar is derived. For instance, average revenue per customer (ARPU) gives a general look at the financial health of a company and can be used to measure against a peer group, but analyzing high revenue accounts will provide valuable data on a company’s most lucrative customers.