Posted on September 16, 2014 by Cody Faldyn
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